Dotting the i's and Crossing the t's of the Tax Law

Dotting the i's and Crossing the t's of the Tax Law

June 07, 2012 by jga_admin

by Melanie Norton

There have been a couple of notable stories in the news lately about the U.S. Tax Court denying substantial charitable deductions for donors when particular requirements weren’t met.

In one case, a charitable contribution of property worth more than $18 million, donated to a charitable remainder trust, resulted in the entire charitable deduction being disallowed because not all of the appraisal requirements were satisfied.*

In the second case, charitable gifts of $23,000 were denied because the recipient charity did not include required information (i.e., no goods or services were provided in exchange for the contributions) when acknowledging the gifts.**

Unfortunately, in the existing tax law there is no provision for correcting such an error after the income tax return due date. Ouch!

Although the particular circumstances of these cases are somewhat debatable, the resulting decisions and outcomes remain the same.

The message for nonprofits -- to be on the safe side, it is critically important for donors and charities to follow the letter of the law when making and receiving charitable gifts.

There are several unfortunate implications one could conceive as a result of these seemingly strict rulings. Certainly both of these cases had a direct and negative impact for the involved parties.

However, painting with the broader brush of philanthropy, cases like this could have an undesired outcome for others by way of fewer major gifts, mistrust of charities by donors or advisors, and a general depression of charitable giving by those who don’t completely understand philanthropy and aren’t in the habit of giving.

I hope none of these potential outcomes comes to fruition, but the charitable world can’t be too careful.

IRS Publication 526 covering charitable contributions and can be found easily on the IRS website at www.irs.gov. There is even a page on the website dedicated to changes affecting the publication at www.irs.gov/pub526.

Publication 526 is an important item to have in your philanthropy toolkit. It covers a variety of topics including:

  • Organizations that qualify to receive charitable contributions
  • Contributions you can and cannot deduct
  • Contributions of property
  • When to deduct, and limits
  • What records to keep, how to get help, and much more

Making yourself familiar with the legal requirements affecting charitable giving is not optional, it’s required. Be sure to utilize your own legal or professional advisors in cases where the requirements are in question or the gift types or vehicles are infrequent.

Dotting your “i’s” and crossing your “t’s” in dealing with donor gifts is well worth your time and will make a meaningful gift a pleasant experience for all. Now, head out and find that next $18 million gift with confidence!

*Mohamed v. Commissioner, T.C. Memo. 2012-152 (May 29, 2012)

**Durden v. Commissioner, T.C. Memo. 2012-140 (May 17, 2012)