Background. Taxpayers are required to maintain records to substantiate deductions claimed on their tax returns, including deductions for charitable contributions. In the event that a taxpayer “establishes that a deductible expense has been paid but is unable to substantiate the precise amount,” the courts in some cases may estimate the amount of the deductible expense. However, as the Supreme Court observed in a landmark case, any estimate of deductible expenses “bears heavily against the taxpayer whose inexactitude in substantiating the amount of the expense is of his own making.” Further, deductible expenses can be estimated only where the taxpayer presents evidence sufficient to provide some basis upon which an estimate may be made. Some expenses can never be estimated. These include travel, entertainment, gifts, and “listed property” (such as personal computers, cell phones, and the business use of a car).
A taxpayer claimed charitable contribution deductions of $5,400 in 1995 and $2,700 in 1996. The IRS disallowed both deductions on the basis of insufficient substantiation, and the taxpayer appealed to the Tax Court.
The court’s ruling. The taxpayer presented no evidence corroborating his alleged contributions. He testified that the supporting records were in the possession of his former spouse, but he did not explain why he was unable to obtain the records for trial. He attempted to provide an estimate of a portion of these expenses by multiplying an approximate number of times he attended church each year by his average weekly contribution, but he was uncertain of even this estimate.
The court conceded that in certain circumstances taxpayers may estimate the amount of their charitable contributions if they “provide a sufficient basis to estimate the amount of the contributions, such as showing regular church attendance and regular cash contributions thereto.” But the court concluded that the taxpayer in this case was not entitled to any deduction for his estimated contributions since he “failed to establish any regularity in occurrence or extent of the donations from which we could estimate an amount, or to present any reliable evidence indicating he actually made these or other contributions.” Ekeh v. Commissioner, T.C. Summary Opinion 2001-50 (2001).
This content originally appeared in Church Treasurer Alert, June 2001.