Back in 1993, yes 1993, Congress added Section 170(f)(8) to the Internal Revenue Code. Congress began requiring that taxpayers get a receipt from a charity for contributions of $250 or more (read over $249) with certain information.
The receipt must contain:
- The amount of cash and a description (but not value) of any other property contributed.
- A statement saying whether the taxpayer received anything in value in exchange for the contribution.
- A description and estimate of the value of any goods or services received by the taxpayer in exchange for the contribution. If all the taxpayer received was “intangible religious benefits” then the receipt should say so.
- The name of the donee (the charity).
- The date of the contribution.
The taxpayer must have the receipt in hand the earlier of the due date of the return or the date of filing. So if you file timely (including an extension), then you have to have the receipt in hand when you file. Items 4 and 5 have been in IRS Regulations since 1982 and were not new in 1993.
In Smith v. Commissioner, T.C. Memo. 2014-203 (PDF) October 2, 2014, the Tax Court again disallowed charitable deductions for improper documentation. The taxpayer claimed $27,277 in donations to the AMVETS, a qualified charity, the details:
- “[S]even sofas, four televisions, five bedroom sets, six mattresses, a kitchen set, a dining room set, a china cabinet, and three rugs” worth $11,730. The taxpayer received the items from his mother’s estate.
- Various other donations of clothing to AMVETS including “180 shirts, 63 pairs of slacks, 153 pairs of jeans, 173 pairs of shoes, 51 dresses, 35 sweaters, nine overcoats, and seven suits” worth $14,487.
- Electronic equipment to AMVETS including “two computer systems, a printer, and a copier” valued at $1,550.
Here are the problems the court found:
- The taxpayer had two “blank” receipts that he completed himself. Neither receipt identified specific items. The court questioned whether blank receipts, signed by the charity before the donation was made, counted as a valid “acknowledgement” by the charity. Nor did the taxpayer show his own list of items donated to AMVETS.
- The case says “The tax receipts state that ‘[a]ll items donated to AMVETS are deductible for income tax purposes at their present Fair Market Value.’” This does not meet the requirements for stating the taxpayer did not receive any goods or services in exchange for the donations.
- Petitioner did not take photographs of the items.
- The taxpayer did not show how he determined the value of the contributed items. He claimed he used a Salvation Army guide but the guide was printed five years after the contribution and the taxpayer claimed his stuff was worth more than the high values on the guide.
- Where the total contributions of similar items exceeds $5,000, an appraisal is required. Mr. Smith provided no appraisals. The furniture alone was supposedly worth $11,730.
For all the above reasons, the court only allowed the $490 in AMVETS contributions the IRS had agreed to allow.
What can we learn from this case?
- Take photographs if you are going to claim a significant value. There is no bright line but since most people have a digital camera or camera phone, taking photographs should be easy.
- Make a list of what you are donating before you take the items to the charity. Then take the list with you and get an employee of the charity to sign and date the list.
- If you are going to donate similar items and claim the total is more than $5,000 then get an appraisal before you take the items to the charity. The appraiser needs to be qualified, you cannot use your drinking buddy unless he is a qualified appraiser.
- Keep a record of how you determined the value of the items you gave away. IRS does not have to accept your opinion. Nor is there a rule of thumb based on the original cost of the item.
- Make sure your receipt is completed and has all the information required by law before you file your return.
For a similar result regarding an inadequate receipt for cash contributions, see Durden v. Commissioner TC Memo. 2012-140 May 17, 2012 (PDF). The Durdens had an inadequate receipt for all but $317 of total 2007 contributions of $25,171 to a church. The IRS denied all but the $317. The court upheld the IRS’ determination even though the Durdens were able to get a corrected receipt after they filed their 2007 return. The additional tax was $7,552 and the penalty was $1,510.40. Quite a lot for not getting a proper receipt but that is how Congress wrote the law.