On May 17, 2012, David & Veronda Durden v. IRS, the courts
ruled that the Durden’s $22,517 donation to their church could not be counted
as a charitable tax deduction.
On their 2007 joint income tax return, Mr. and Ms. Durden claimed
a deduction of $22,517 for charitable contributions of cash and checks to their
church.
The IRS denied the Durdens’ deduction because they did not have
the proper acknowledgement of their contributions from the church. The Durdens
sued in Tax Court arguing, among other things, that they “substantially
complied” with the statutory acknowledgment requirements. They had statements
acknowledging the gifts from their church, along with canceled checks, and
produced these as evidence. The court disagreed with the Durdens and did not
allow their deduction.
The courts said that the acknowledgement did not contain the
wording, “no goods or services were received in exchange for this gift.”
The church attempted to issue new acknowledgements to the Durdens,
however these were not allowed. The courts referred to tax code that states
that the acknowledgements must be issued on or before the filing due date, or
the date that the filing is made.
Is your church in compliance?
In order to protect committed church members from a fate similar
to the Durdens, church acknowledgements must contain amount (value) and date of
the gift, along with one of the following phrases:
“No goods or services were
provided in exchange for your contributions,” or
“No goods or services were
provided in exchange for your contributions other than intangible religious
benefits.”
Information about goods and services received from the church is
important because, generally, a donor must reduce the amount of the
contribution deduction by the fair market value of the goods and services provided
by the church. This provision was added to the tax code in 1993 to curb some
abuses.
Refer to the following IRS tax codes:
26 USC § 170 - Charitable, etc.,
contributions and gifts
(f) Disallowance of
deduction in certain cases and special rules
(8) Substantiation
requirement for certain contributions
(A) General rule
No deduction shall be allowed under subsection (a) for any
contribution of $250 or more unless the taxpayer substantiates the
contribution by a contemporaneous written acknowledgment of the
contribution by the donee organization that meets the requirements of
subparagraph (B).
(B) Content of
acknowledgement
An acknowledgement meets the requirements of this subparagraph if
it includes the following information:
(i) The amount of cash and a description (but not value) of any
property other than cash contributed.
(ii) Whether the donee organization provided any goods or
services in consideration, in whole or in part, for any property described in
clause (i).
(iii) A description and good faith estimate of the value of any
goods or services referred to in clause (ii) or, if such goods or services
consist solely of intangible religious benefits, a statement to that effect.
For purposes of this subparagraph, the term “intangible religious
benefit” means any intangible religious benefit which is provided by an
organization organized exclusively for religious purposes and which generally
is not sold in a commercial transaction outside the donative context.
26 USC § 170 - Charitable, etc.,
contributions and gifts
(f) Disallowance of
deduction in certain cases and special rules
(8) Substantiation
requirement for certain contributions
(C) Contemporaneous
For purposes of subparagraph (A), an acknowledgment shall be
considered to be contemporaneous if the taxpayer obtains the acknowledgment on
or before the earlier of —
(i) the
date on which the taxpayer files a return for the taxable year in which the
contribution was made, or
(ii) the due date (including extensions) for filing such return.
The
court case referred to was David P. Durden and Veronda L. Durden v.
Commissioner. The Memorandum Opinion was issued by Judge Cohen of the U.S. Tax
Court, Dkt. No. 17441-09, TC Memo. 2012-140 on May 17, 2012.
