Tax Requirements for Charity Deduction

From the Desk of Sam Handwerger

In a minute I am going to be telling you that I agree with a recent tax court decision finding that went against a taxpayer - this despite the onerousness of the ruling. A valuable but harsh lesson is learned here.

From the facts it appears that we are dealing with a religiously inclined couple, people that we might associate with being model citizens. THE FACTS: In 2007 the couple gave $25,171 in charitable donations to their church. Except for five small checks, all of the contributions were in excess of $250.00.

The IRS disallowed all of these deductions except for the small checks because the statute says that you must have written receipts of charitable gifts of $250.00 or more in hand by the time you file your return in order to claim the deduction, which in this case the couple did not have. During the course of the IRS audit the couple did inform the church about the lack of receipts and the church then provided receipts substantiating all of the deduction. This was provided to the couple in 2009, long after the return for 2007 had been filed. Note that canceled checks are not sufficient for these $250.00 or more gifts.

The tax court upheld the IRS decision and disallowed the deductions on the theory that the law is clear – you must have received the correct written documentation in a timely fashion in order to take the deduction.

Given the fact that the couple obviously did make the deduction this result seems harsh and unfair. YET, I AGREE WITH THE DECISION. Why? Because the tax court is merely filing how the law was written. The Internal Revenue Code clearly spells out the need for contemporaneous documentation in order to “take the deduction”, not just to be able to “prove” it when called upon.

Of course, if this were me or one of my clients I would be up in arms and ready to fight City Hall. I would probably want to take this to the media and say look how cruel the IRS is acting. But the IRS and the court are...