Tax Court Reverses IRS, Allows Charitable Contribution Deduction

Church letter verifying giving records meets substantiation requirements, court rules.

Church Finance Today

Tax Court Reverses IRS, Allows Charitable Contribution Deduction

Church letter verifying giving records meets substantiation requirements, court rules.

A taxpayer attended church regularly. Sometimes he would attend his father’s church and other times his grandfather’s, but he contributed to both churches. He made weekly payments using offering envelopes provided by the churches. He put both cash and checks into these envelopes. On his federal income tax return he claimed a charitable contribution deduction of $6,045 for donations to the two churches. The IRS denied any charitable contribution deduction for lack of substantiation. The taxpayer appealed, and the Tax Court allowed a full deduction for donations made to the churches.

The Tax Court noted that the charitable contribution deduction “is subject to certain substantiation requirements.” For example, a taxpayer claiming a charitable contribution deduction “shall maintain for each contribution one of the following”:

(i) A cancelled check.
(ii) A receipt from the charitable organization showing [its name], the date of the contribution, and the amount of the contribution. A letter or other communication from the charitable organization acknowledging receipt of a contribution and showing the date and amount of the contribution constitutes a receipt.
(iii) In the absence of a canceled check or receipt from the charitable organization, other reliable written records showing the name of the charity, the date of the contribution, and the amount of the contribution.

Other requirements apply to individual contributions of $250 or more, but the taxpayer in this case made no such contributions to either church.

The court concluded that the IRS was wrong to deny the charitable contribution deduction. It concluded,

The taxpayer did not present any canceled checks or credit card receipts with respect to his charitable contributions. However, he did produce letters from [each church] acknowledging contributions of $3,735 and $4,466, respectively for the year in question. These contributions total $8,201, and exceed the $6,045 claimed on the taxpayer’s return. The taxpayer asked to have his contributions and evidence considered to the fullest extent possible. The court is satisfied with the credibility of his testimony as verified by his documentation under the cited legal standards and, therefore, allows a charitable contribution deduction of $8,201 for the year at issue.

As this case demonstrates, receipts issued by church treasurers often will be the deciding factor in whether a church member is entitled to a charitable contribution deduction. As a result, it is important for church treasurers to be familiar with all the applicable rules. For more information, including sample receipts, see pages 313-341 in Richard Hammar’s 2004 Church & Clergy Tax Guide.

This article first appeared in Church Treasurer Alert, July 2004.

Richard R. Hammar is an attorney, CPA and author specializing in legal and tax issues for churches and clergy.

This content is designed to provide accurate and authoritative information in regard to the subject matter covered. It is sold 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." Due to the nature of the U.S. legal system, laws and regulations constantly change. The editors encourage readers to carefully search the site for all content related to the topic of interest and consult qualified local counsel to verify the status of specific statutes, laws, regulations, and precedential court holdings.

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