To Our Clients and Friends:
As we approach the end of the year, a recent Tax Court case is a good reminder of what it takes to support a deduction for noncash charitable contributions that perhaps you’ve already given this year or plan to donate in the coming weeks.
The taxpayer in the case claimed a deduction of almost $28,000 for three separate noncash donations to a charitable organization. The donated items consisted of clothes, household goods and furniture, and various electronics, including computers and a printer. Because of the size of the donations, he was subject to several documentation requirements related to substantiating his donations. These included:
- A need to obtain a written acknowledgment from the charity (required any time cash or noncash donations are $250 or more) describing what was donated and when, and stating either that no goods or services were rendered in return for the donation or describing and valuing what the charity provided in return. The acknowledgment must be obtained by the time the tax return for the year of the donation is filed or due, whichever comes first.
- A requirement to maintain documentation for noncash donations of the same or similar items (such as clothing, jewelry, furniture, electronic equipment, household appliances) exceeding $500 that (a) indicates the appropriate date each noncash item was acquired, (b) includes a reasonably detailed description of the donated property along with its condition, (c) estimates the purchase price of the item, (d) describes its current retail (usually second-hand or thrift-store) value, and (e) explains how this value was determined (e.g., from the Salvation Army’s online donation guide: http://satruck.org/donation-value-guide).
- And finally, a requirement to have the noncash items appraised (by a qualified appraiser) because they were not publicly traded securities and they collectively exceeded $5,000 for the same or similar items included in the donations.
Although the taxpayer had written acknowledgments, they unfortunately failed to make the grade because they didn’t contain a description of the donated items (or, contain a reference to separate attachments with descriptions that were reviewed by the charity’s representative who received the donations). In addition, he failed to take pictures of the donated items to support their quality and condition (not a requirement, but it would have been helpful), and most importantly, failed to have a qualified appraisal prepared before the items were donated.
If the taxpayer had received a properly completed written acknowledgment by the required deadline, he might have at least salvaged a deduction for $4,999 or less. As it was, the Tax Court threw out the entire almost $28,000 deduction.
This was certainly not a good outcome for this taxpayer, but a helpful reminder that the IRS and the courts take the charitable donation documentation rules seriously.
Feel free to contact us if you have any questions about documenting your own contributions.
Written by Mike Musson, CPA, Partner