Improper substantiation equals zero deduction

Recent Tax Court case illustrates importance of strict compliance with charitable deduction substantiation rules

Religious teachings often include illustrations of the dire consequences that befall those who fail to follow certain rules. A recent Tax Court case illustrates the harsh tax price a taxpayer paid for a minor rule infraction for contributions they made to a church.

The facts are simple. The taxpayer claimed a deduction for $25,171 for donations made by various checks, all but $317 were for amounts of $250 or more. In accordance with standard procedure, the church provided the taxpayer with a letter shortly after the year of the donations, acknowledging the donations and the amount, but the letter did not include a statement that the church did not provide any goods or services to the taxpayer in exchange for the donations. The taxpayer was audited by the IRS. They produced the cancelled checks and the acknowledgment letter. The IRS examiner disallowed all but $317 of the donations, citing the Internal Revenue Code section that requires the statement noted above to be in the acknowledgment letter for donations of money of $250 or more. The taxpayer then provided a second letter from the church which included the statement. The IRS still disallowed the deduction, citing the Code and pertinent Regulations which require that the statement must be furnished by the donee before the taxpayer files their tax return, or before the extended due date of the return, whichever is earlier.
Thus, for lack of a simple sentence the taxpayer lost $25,000 of the contributions they made to a church. They lost at the IRS exam level, they lost at the Appeals level, and now they have lost at the Tax Court level. And that's where the tax story will almost certainly end, the only consolation being that the taxpayer only had to undergo three levels, unlike the nine in Dante's Inferno.
The following link provides the applicable rules. http://tinyurl.com/y65oc8