Mere donative intent is not enough….. Tax Court: Contributions Failed Substantiation Tests

Posted by Kevin Dougherty in Taxes | 0 comments

Charitable contributions are one area that the IRS has cracked down on in recent years. The bigger your charitable deductions, the more stringent the substantiation rules are — and the more likely the IRS is to audit them. A recent U.S. Tax Court case demonstrates that it’s critical for taxpayers to provide (and retain) adequate documentation to support their charitable contribution deductions.

Facts of the case: After his mother’s death, Thad Smith deducted nearly $28,000 in charitable contributions on his 2009 personal tax return for donations of his parents’ household goods, clothing and electronic equipment to AMVETS, a qualified charity. Smith combined all of the donation acknowledgments on two blank “tax receipts” provided by the charity and prepared a spreadsheet that identified the items donated and valued them using lists found on the Salvation Army’s website. However, there was no evidence that this spreadsheet was ever provided to or seen by AMVETS.

The values that Smith placed on many of the items he allegedly donated were considerably higher than the “high” values shown on the Salvation Army’s website. Smith offered no explanation for this discrepancy. He also didn’t obtain any appraisals, take photographs or introduce evidence to establish the condition of the items he allegedly donated. Moreover, he failed to provide written records establishing when his parents had acquired the items or what their cost and fair market values were on the contribution date.

Despite having no doubt that Smith donated property to a charitable organization, the Tax Court ruled that none of his contributions were deductible because he failed the charitable contribution substantiation tests. The nature of the required substantiation depends on the size of the contribution and on whether it is a gift of cash or property.

Don’t let this happen to you. The IRS has explicit rules that vary depending on the value of your donation and the type of property contributed. Please contact us if you plan to donate noncash items worth $250 or more on your personal tax return.

For more information on this case, see below:

(Thad Deshawn Smith v. Commissioner, T.C. Memo 2014-203.) http://www.ustaxcourt.gov/InOpHistoric/SmithMemo.Lauber.TCM.WPD.pdf