• The IRS is becoming increasingly concerned about donors who claim charitable contribution deductions for “gifts” to charity for which they receive a “premium” in return. IRS Commissioner Lawrence Gibbs recently warned that if charities do not begin properly notifying donors that such “contributions” are not fully deductible, then Congress may be forced to enact legislation requiring that such notice be given. Gibbs cited an “alarming number” of misleading solicitations. No charity has yet lost its tax-exempt status because of a failure to properly notify donors that contributions for which a premium are received are not fully deductible, but Gibbs did suggest that the IRS might apply section 6701 of the Internal Revenue Code to such charities. Section 6701 imposes a penalty of $1,000 upon a person or organization that “aids and abets” in the understatement of another’s tax liability. The $1,000 penalty may be assessed against a charitable organization for every donor’s tax return that understates tax liability because a full charitable contribution deduction was claimed despite the donor’s receipt of a premium from the charity. This issue was discussed fully in a feature article in the November-December 1988 issue of Church Law & Tax Report.

© Copyright 1989, 1998 by Church Law & Tax Report. All rights reserved. This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is provided 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. Church Law & Tax Report, PO Box 1098, Matthews, NC 28106. Reference Code: m08 m16 m34 c0389