Substantiating Charitable Contributions

What are the reporting requirements?

Church Law and Tax 1992-11-01 Recent Developments

Taxation – Church Property

The Tax Court refused to permit a taxpayer to deduct cash contributions she made to a television evangelist and her local church, since she could not substantiate any of the contributions. The taxpayer claimed charitable contribution deductions of $2,765 in 1987 and $2,904 in 1988. The IRS audited the taxpayer, and disallowed any deduction for the claimed contributions. The IRS based this decision on the fact that the taxpayer had made all of the alleged contributions in cash and was not able to substantiate any of them with canceled checks or other written evidence (such as notations in her personal diary or written receipts from the organizations to which the contributions allegedly had been made). The Tax Court agreed that the taxpayer could not deduct any of her alleged contributions. It observed:

We begin by noting that deductions are strictly a matter of legislative grace, and a taxpayer has the burden of establishing that he or she is entitled to any deduction claimed on the return. All taxpayers are required to keep sufficient records to enable [the IRS] to determine their correct tax liability. [The Internal Revenue Code] allows a deduction for charitable contributions subject to certain limitations. If a taxpayer makes a cash contribution, in the absence of a canceled check or receipt from the donee, he or she must maintain other reliable written records showing the name of each charity and the date and amount of each contribution. None of the above-listed forms of documentation exists. [The taxpayer] offers the defense of destruction of her records. The [televangelist] had no record of the contributions …. This Court is not bound to accept the unverified, undocumented testimony of taxpayers. [The taxpayer’s] testimony, without more, is not sufficient to carry her burden of proof. [She] has not met her burden of proof to substantiate any portion of her cash charitable contributions.

What is the significance of this case? It demonstrates the importance of church members maintaining documentary evidence of their charitable contributions. As the Court noted, the income tax regulations permit church members to substantiate contributions to their church in any one of the following three ways: (1) a canceled check, (2) a receipt or letter from the donee church showing the church’s name and the amount and date of the contribution, or (3) any other reliable written record showing the name of the church and the amount and date of the contribution. If the donor has no canceled check or church receipt to support a contribution, then he or she has the burden of maintaining reliable written records supporting the contribution. It cannot be assumed that oral testimony will be adequate substantiation (oral testimony commonly was used to substantiate contributions prior to 1985). Written records generally are considered to be reliable if made at or near the time of an alleged contribution, or if part of a donor’s regular recordkeeping procedures. They may include entries in a taxpayer’s diary or personal calendar. Jones v. Commissioner, T.C. Memo. 1992-466.

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