$434,000 charitable tax deduction lost because of a few missing words

        The IRS continues to remind us how rigid the standards are for charitable tax deductions, and that the absence of a few words before filing the tax return can be disastrous.  In a recent Tax Court decision, a widow donated a collection of Native American jewelry and artifacts worth $434,000 to a museum that she and her husband had acquired during their marriage.  She thought she did everything correctly to claim her tax deduction.  She had a signed deed from the museum in hand before she filed her tax return.  Despite the fact that both she and the museum now agree that the museum did not provide any consideration as part of the donation, the Tax Court denied her tax deduction because her paperwork was missing the magic wording that no goods or services were received in exchange for the donation, a very expensive mistake!

The widow and the museum had executed a “Deed of Gift” consisting of five pages stating that she was donating the material described below under the terms stated in the Conditions Governing Gifts to the museum and attached a list of the 120 items donated.  The deed provided that the donation was “unconditional and irrevocable.”  The first page also included the museum’s logo, the donee’s address and identification number, and was signed by both the done and a museum official.  The Tax Court did not dispute that she made the donation or that she received the deed before filing her return (which is part of the requirement), however, the Court held that the deed did not comply with the strict requirements of the Internal Revenue Code Section 170 since it did not specify whether the museum provided any goods are services in return for the donation or state that it represented the entire agreement.             

Reminder about Charitable Contribution Receipts

Cash donations

  • You must have a written receipt for all cash donations before you file your tax return (see below)

Donation by check, credit card, or debit card

  • If less than $250, your cancelled check or credit/debit card transaction serves as your receipt
  • If $250 or more, you must have a written receipt before you file your tax return (see below)

Donation of noncash items

  • If $250 or more, you must have a written receipt before you file your tax return (see below)
  • In addition to written receipt, a qualified appraisal is required if you donate property or a group of similar property worth more than $5,000 during a year (publicly traded stock excluded)

Used cars, boats, or planes

  • If charity sells the vehicle, generally must get Form 1098-C from the charity which reports the sales price (generally your deduction is limited to the actual sales price)

Volunteer expenses

  • If $250 or more, you must have a written receipt before you file your tax return (see below)

Written receipts/acknowledgements when required must meet the following IRS requirements:

  • Your name and address
  • The charity’s name and address
  • The date of the contribution
  • A detailed description of what was donated
    • Charity only needs to list value if it was cash, check, credit card or debit card transaction
  • Tax-exempt status of the charity
  • Restrictions, if any, that you placed on the donation
  • A statement indicating whether you received any goods or services in exchange for the contribution. If goods or services were received in exchange for the contribution, a good faith estimate of the value of those goods or services should be provided

This advice isn’t intended or written to be used for the purpose of avoiding penalties and cannot be used for that purpose.