Tax Court: No Mercy For Donors with Inadequate Receipts

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As most people are aware, the tax laws require donors to maintain documentation to substantiate their charitable contribution deductions. If audited, donors must be able to provide the IRS with qualifying receipts of certain contributions or risk the disallowance of their claimed deductions. A recent ruling by the U.S. Tax Court, Durden v. Commissioner of Internal Revenue, demonstrates the dangers to donors and charities of not complying with the strict content requirements for charitable contribution acknowledgements.

David and Veronda Durden had contributed $25,171 in 2007 to the Nevertheless Community Church and received a written acknowledgement of their contributions. Unfortunately, their receipt failed to state that the Durdens had not received any goods or services in exchange for their contributions. After the IRS disallowed the Durdens' deduction for insufficient acknowledgement, the Durdens obtained and provided to the IRS a second acknowledgement from their church, this time indicating that the Durdens received no goods or services in return for their 2007 contributions. The IRS rejected that second acknowledgement as well for not meeting the "contemporaneous" requirement. The Durdens sought relief from the Tax Court, but the Tax Court concluded that the Durdens had "failed strictly or substantially to comply with the clear substantiation requirements of section 170(f)(8), and their deduction for the charitable contributions in issue for 2007 must be disallowed." On May 17, 2012, the Tax Court therefore affirmed the IRS's disallowance of the deduction.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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