In a recent case, Flores v. Comm., T.C. Memo. 2015-9 (Jan. 12, 2015), the Tax Court held that a married couple was not entitled to $7,229 of charitable deductions along with the denial of several other deductions claimed by the couple. The couple's charitable contributions consisted of two types: $1,230 of cash and check contributions to miscellaneous charities and $5,999 for expenses related to the wife's volunteer work for Bill George Football League, a youth football league.
The Tax Court, in its opinion, discussed the fact that a contribution to a charitable organization is generally deductible by the donor if she maintains the proper records, but specifically noted that no deduction is allowed for any contributions of $250 or more unless the donor substantiates the contribution by a "contemporaneous written acknowledgement" provided by the charitable organization. The Internal Revenue Code and the Treasury Regulations provide that a "contemporaneous written acknowledgement" provided by the charitable organization must include the following information:
- The amount(s) contributed by the donor;
- A statement indicating whether the charitable organization provided any goods or services in return for such contribution(s);
- A description and good-faith estimate of the value of any goods or services provided to the donor in return for such contribution(s); and
- A statement indicating whether the charitable organization provided any intangible religious benefits.
The Treasury Regulations state that the charitable organization should provide such acknowledgment on or before the earlier of: (1) the date the donor files her original return for the taxable year in which the contribution was made; or (2) the due date for filing the donor's tax return for such taxable year.
The Tax Court also observed that out-of-pocket expenses incurred by a donor when providing donated services to a charitable organization may be deductible if the donor is able to substantiate her contribution by providing certain reliable documents along with a statement from the charitable organization containing information similar to the information required for a "contemporaneous written acknowledgment."
In the Flores case, the IRS argued that the couple was not entitled to any charitable deduction because they did not substantiate any of the contributions. In that case, the couple did not provide any receipts, bank records, or documentation for the cash or check contributions to the different charities. Likewise, the couple did not produce any of the required documentation to substantiate the expenses related to the wife's volunteer work for the youth football league. As a result, the Tax Court summarily sustained the disallowance of the couple's charitable deduction. In addition to denying those deductions, the Tax Court upheld the imposition of a 20% negligence penalty against the couple.
The facts in the Flores case are particularly egregious, but the holding by the Tax Court serves as a reminder to charitable organizations and their donors that it is extremely important for charities to provide the proper acknowledgement documents to their donors.
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