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Check Your Charitable Donation Letters Carefully

By: David Faje, CPA, MST, Tax Manager, Warady & Davis LLP – February 13, 2014

Many of you are now in the process of gathering your 2013 tax information including acknowledgement letters from your favorite charities for any contributions made last tax year. We want to make sure you are aware that there can be serious consequences for donors if letters aren’t received timely or are not written in accordance with stringent IRS guidelines. 

A recent tax court case highlighted the need for timely and properly worded acknowledgements.  In this case, the IRS disallowed a donor’s deduction because the charity’s acknowledgment letter did not contain the necessary wording.  The donor then obtained a properly worded letter from the charity, however the IRS disallowed the deduction because it was received after the donor filed his return and the court upheld this decision.

In the spirit of making sure you receive full tax benefit for your charitable contributions, let’s review the rules.  The tax laws provide that “No deduction shall be allowed 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.”

The rules explain that an acknowledgment shall be considered contemporaneous if the donor obtains the acknowledgment on or before the earlier of (1) the filing date of the donor’s tax return, or (2) the due date (including extensions) of filing the return.

The rules further explain that the acknowledgment letter must contain the following information:

  1. The amount of cash and a description (but not value) of any non-cash property contributed;
  2. Whether the donee organization provided any goods or services in consideration for the donation;
  3. A description and good faith estimate of the value of any goods or services that the organization provided, or if such goods or services consist solely of intangible religious benefits, if that was the case.

In the tax court case mentioned above the charity failed to include the simple phrase “No goods or services were provided in exchange for your contribution.”  This case emphasizes the importance of reviewing your charitable acknowledgments to make sure they include the necessary information and are received timely.

If you have any questions about your tax planning and preparation please contact Warady & Davis LLP at 847-267-9600.

About Our Author:
David Faje, CPA, MST, Tax Manager.
David Faje is a Manager in Warady & Davis LLP’s tax practice.  For more than 20 years, David has managed tax engagements, examinations, and performed high-level research and tax planning.  He is a specialist in tax compliance, planning and related issues for not-for-profit organizations, service companies, and high net-worth individuals.

This publication is distributed with the understanding that the author, publisher and distributor are not rendering legal, accounting or other professional advice or opinions on specific facts or matters, and accordingly assume no liability whatsoever in connection with its use. ©2014  Pursuant to Internal Revenue Service Circular No. 230, be advised that the information contained herein was not intended or written to be used and cannot be used by any taxpayer for the purpose of avoiding any Internal Revenue Code penalties that may be imposed on the taxpayer. It was written with the intent of disseminating general information related to the transaction(s) or matter(s) addressed herein.