Properly Documenting Donors' Contributions
A recent Tax Court decision underscores the critical steps churches must take.

In the August 2012 edition of Church Finance Today, Richard Hammar examines a recent, high-profile case involving a couple whose substantial contributions to a church were denied tax deductibility by the Internal Revenue Service:

A married couple (the "taxpayers") timely filed their 2007 income tax return. On Schedule A they claimed a deduction of $25,171 for charitable contributions made by cash or check. Most of the contributions were made by check to their church. Except for five checks totaling $317, the checks were for amounts larger than $250.
In 2009 the IRS sent a notice to the taxpayers disallowing their charitable contribution deduction for 2007.
In response, the taxpayers produced records of their contributions, including copies of canceled checks and a letter from the church which acknowledged contributions from them during 2007 totaling $22,517 (the "first letter"). The IRS did not accept the first letter and informed the taxpayers that it lacked a statement regarding whether any goods or services were provided in consideration for the contributions.
The taxpayers obtained a second letter from the church (the "second letter") that contained the same information found in the first letter as well as a statement that no goods or services were provided to them in exchange for their contributions.
The IRS concluded that the taxpayers were not entitled to a deduction for the charitable contributions of $250 or more made to their church during 2007 because neither the first nor the second letter from the church satisfied the requirements of section 170(f)(8) of the tax code, which lists ... substantiation requirements for individual contributions of $250 or more.

The couple appealed the IRS decision. To learn what the Tax Court ruled, and to learn more from Rich about proper substantiation requirements for donations of $250 or more (including several relevant examples for churches), subscribe to Church Finance Today. Those who subscribe now should also call our customer care office (1-800-222-1840) to make sure they receive the August edition.

Rich also comprehensively covers charitable contributions for churches in Chapter 8 of his annual Church & Clergy Tax Guide.

This content is designed to provide accurate and authoritative information in regard to the subject matter covered. It is published with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a competent professional person should be sought. "From a Declaration of Principles jointly adopted by a Committee of the American Bar Association and a Committee of Publishers and Associations

Comments

Displaying 1–3 of 3 comments

Matt

August 30, 2012  1:53pm

Pastor Clint, Thanks for your follow-up comment. You are correct–with enough time, energy, and effort, one can learn more about this case by researching it on the Internet. Or, one can save themselves the time and read the portion we provided here, which provides the setup and basic explanation. Your assessment regarding the inclusion of the Tax Court decision as a part of the free article, rather than as a referral to the full article, may be true. As I stated in my first response, we constantly evaluate what we can offer for free, and so we will take this feedback into consideration for future posts. Either way, the incentive to obtain a copy of Church Finance Today remains valuable and relevant. Beyond the examples and key points Rich provides in this feature article, this edition also provides a tax calendar with deadline reminders and a Q&A addressing whether a church can adjust the mileage rate for volunteers. It's good stuff, and that's true of every edition. I hope you'll check it out.

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Matt

August 28, 2012  10:21am

Greetings "please sell me more"– Thank you for submitting your comment on ManagingYourChurch.com. I'm sorry to hear you feel we promote too many premium resources through our e-newsletters and various channels. As a not-for-profit ministry serving churches, we go to great lengths to balance the types of content we offer to church pastors and leaders. We understand the budgetary limitations for many congregations, and so we do as much as possible to provide useful content for free. Unfortunately, we can't give it all away–if we did, we wouldn't remain financially viable for very long. In addition to our free e-newsletters, and a selection of free articles on ManagingYourChurch.com and ChurchLawAndTax.com, we also have provided free one-hour webinars this year with church attorney Richard Hammar. We also regularly provide free excerpts of premium content that prove useful for day-to-day ministry; for example, in recent weeks, we've published information from the annual Church & Clergy Tax Guide and our newly released eBooks. Today's excerpt from Church Finance Today explained how the IRS rejected the donors' appeals. Again, I appreciate your comment. Please know that we strive every day to provide the very best content related to church law, tax, finance, and risk management topics, and in that work, we constantly evaluate what may be made free, and what must remain premium, in order for us to continue providing all of it both now and in the future. Blessings, Matt Branaugh

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please sell me more

August 28, 2012  9:46am

It is pretty sad when Christianity Today is more interested in selling a product via this article than providing timely and important information for churches. Sorry that I bothered to show up.

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