Did not cross t or dot i

[Bees Knees]

Interesting court case:

http://www.thetaxbook.com/updates/TheTaxBook/Updates/2012-07-12_Deduction_Denied_Because_Taxpayers_Failed.pdf

Which illustrates the importance of following the letter of the law.

[JohnH]

That's a very intense matter. Sure does put a lot of church financial secretaries on the hot seat.

But I thought the issue only affected contributions over $250. Would any checks they gave which were under $250 be allowable? Or maybe all their checks exceeded the $250 figure...

The bigger issue is what would a church do if their acknowledgements in past years didn't containt the correct wording? Should they re-send contribution statements with the correct wording to anyonbe who gave over $250? And how far back - 3 years?

[Bees Knees]

But I thought the issue only affected contributions over $250. Would any checks they gave which were under $250 be allowable? Or maybe all their checks exceeded the $250 figure...

The contributions that were not allowed were those where the checks were $250 or more. I would assume someone giving $25,000 per year to their church would normally be writing checks for way more than $250 at a time.

The bigger issue is what would a church do if their acknowledgements in past years didn't containt the correct wording? Should they re-send contribution statements with the correct wording to anyonbe who gave over $250? And how far back - 3 years?

The taxpayer is supposed to have the letter from the church by the time he/she files the return. Thus, you can't go back after the return is filed and ask for an acknowledgement. That is why the IRS denied the second statement in the court case. By the time the IRS denied the deduction based on the first letter, the return had already been filed. Thus, they could not go get a second letter from the church with the correct language because by then it was too late.

[JohnH]

True, but it could be a combination of both. So, for example, if a person gave 20 checks greater than $250 and another 30 checks in the amount of $200, and the contribution statement is defectgive, then as I understand it they would be entitled to a $6,000 deduction. (This is assuming the contributions wer genuine in the first place) I just wnated to clarify that.

As for the second statement, it would appear that a church which sent statements out without the proper wording has no way to rectify the problem once the taxpayer has filed their return. (Although I'm wondering if a good-faith effort by the church to send statements before an audit takes place might provide the taxpayer with some potential cover - maybe not).

This raises another issue - just how far must the tax preparer go in verifying this info? If the client furnishes only the figures, should the preparer ask them to furnish the statement from the church, or just tell them the wording must be on the statement? And then, if the wording is missing, does the tax preparer place himself/herself in a difficult position if they do anything other than refuse to complete the return before the proper statement is obtained?

[Bees Knees]

Well, I think it probably is a good idea to ask the client for all acknowledgment letters for contributions of $250 or more, before it is too late to get a "corrected letter." Maybe whatever organizer we send to clients at the beginning of the year should ask for all acknowledgment letters for charitable contributions. Many of my clients already provide me with those letters along with their W-2s, 1099s, etc.

[Gary2]

This raises another issue - just how far must the tax preparer go in verifying this info? If the client furnishes only the figures, should the preparer ask them to furnish the statement from the church, or just tell them the wording must be on the statement? And then, if the wording is missing, does the tax preparer place himself/herself in a difficult position if they do anything other than refuse to complete the return before the proper statement is obtained?

You have no obligation to the IRS to verify this information, as long as there's nothing about the return that appears inconsistent, incomplete, or incorrect. As to your obligation to your client to explain it, that would depend upon your service agreement with the client. If the total contributions are significant, then it behooves you to assist your client with complying, regardless of any legal or contractual obligation to do so.

If you happen to see a receipt that's inadequate, then of course, you can't use the corresponding deduction. Unless it's such a small amount that the client is willing to forgo the deduction, the best course is to hold up the return, filing an extension if necessary, until a corrected statement can be obtained.

Typically it's only small organizations that don't get these right. But since they're small, they'll usually fix it quickly once it's pointed out. I suggest giving the client a copy of the page of Pub. 526 that explains the rules.

[FEDUKE404]

This was discussed earlier?

I am fairly certain this topic has been discussed on these boards before the now-cited article by TTB. (If not, I had read this ruling and a related discussion elsewhere earlier this year.)

The way I understood things is: 1) the receipt was technically "unacceptable" due to missing verbiage and 2) the receipt was apparently only made available AFTER the filing of the disputed tax return.

While I personally feel this court ruling is bordering on picky...."them's the rules!"

FE

[joanmcq]

I had an audit where a very large employer's payroll giving program did not have the correct verbiage, and a $1,000 and a $500 donation were not allowed due to this (both were made in a lump sum). Every other requirement was satisfied; they had the paystub with the donation, the pledge statement, and the receipt. The donation program was such that it was inconcievable that anything would have been received for the gift.

I spoke with the company's HR person in charge of the employee contribution program, and they HAD NO IDEA of the requirement for the verbiage. And there was no way in the letter of the code to perfect it after the fact (after the return had been filed). Trust me, I tried.

Anyone preparing 990s should be ready to inform clients of the law. And anyone who sees an imperfect letter should have their clients attempt to get a correction BEFORE they file the return. It's doing your clients and the organization a huge service.

[taxea]

I had an audit where a very large employer's payroll giving program did not have the correct verbiage, and a $1,000 and a $500 donation were not allowed due to this (both were made in a lump sum). Every other requirement was satisfied; they had the paystub with the donation, the pledge statement, and the receipt. The donation program was such that it was inconcievable that anything would have been received for the gift.

I spoke with the company's HR person in charge of the employee contribution program, and they HAD NO IDEA of the requirement for the verbiage. And there was no way in the letter of the code to perfect it after the fact (after the return had been filed). Trust me, I tried.

Anyone preparing 990s should be ready to inform clients of the law. And anyone who sees an imperfect letter should have their clients attempt to get a correction BEFORE they file the return. It's doing your clients and the organization a huge service.

I would argue that the second letter was merely meant to clarify the fact that no services etc were rendered on the part of the donor and the first letter should stand as acceptable since the error was not intentional and the omittion of the required wording should not cause the donor to be punished by denying the donation.

[JohnH]

I think the decision in this case pretty much nullifies that argument before it leaves the gate.

This appears to me to be an unsolvable problem once the return is filed.

[FEDUKE404]

Invalid receipt means no receipt

I would argue that the second letter was merely meant to clarify the fact that no services etc were rendered on the part of the donor and the first letter should stand as acceptable since the error was not intentional and the omittion of the required wording should not cause the donor to be punished by denying the donation.

You could "argue" all you wish, but the Tax Court has pretty clearly stated their position on the matter and the requirement for certain contemporaneous substantiation requirements.

http://www.ustaxcourt.gov/InOpHistoric/durdenmemo.TCM.WPD.pdf

I do find it interesting that the charitable organization involved goes by the name of Nevertheless Community Church (NCC) of Texas.

FE

[Bees Knees]

I would argue that the second letter was merely meant to clarify the fact that no services etc were rendered on the part of the donor and the first letter should stand as acceptable since the error was not intentional and the omittion of the required wording should not cause the donor to be punished by denying the donation.

That is exactly what the taxpayers argued in Court. They said they had substantially complied with the rules. The second letter substantiated the first letter.

The Court disagreed and said nothing in the statue or legislative history requires the IRS to look beyond the written acknowledgment when on its face the acknowledgment fails to provide the information required to substantiate a charitable contribution deduction.

[joanmcq]

And that was exactly what the auditor said as well.

[Burke]

And so much for a "kinder, gentler IRS." Recently returned from NATP's National Conference in Baltimore. Comments were made by several that all the "old salts" we used to deal with and use reasonable arguments with up there are gone and in their place --- young whippersnappers trying to make an impression.

[Gary2]

I don't know that the finger should point at either the court or the IRS, given that it was Congress that wrote, in section 170(f):

(A)General Rule

No deduction shall be allowed under subsection (a) for any contribution of $250 or more unless the taxpayer substantiates the contribution by a contemporaneous written acknowledgment of the contribution by the donee organization that meets the requirements of subparagraph (B).

(B)Content of acknowledgement

An acknowledgement meets the requirements of this subparagraph if it includes the following information:

Compare that to the substantiation requirements for travel and entertainment expenses, in section 274(d):

...unless the taxpayer substantiates by adequate records or by sufficient evidence corroborating the taxpayer’s own statement
...
(D) ... The Secretary may by regulations provide that some or all of the requirements of the preceding sentence shall not apply in the case of an expense which does not exceed an amount prescribed pursuant to such regulations. (italics added)

In other words, Congress made a very specific substantiation requirement for charitable contributions, but a more flexible requirement, with some vagueness ("adequate records") for T&E expenses. I don't much like Congress's decision, but I can't blame the IRS for never (publicly) allowing a charitable contribution that doesn't satisfy the law.