The U.S. Tax Court has given nonprofits one more reason to be scrupulously thorough in acknowledging gifts.
The court Thursday ruled that a taxpayer cannot receive an income-tax deduction if the nonprofit receiving the gift does not fully substantiate the gift in a timely manner. That includes the statement that the taxpayer received no goods or services in exchange for the gift.
A taxpayer-couple had given almost $23,000 to its church in 2007. The church provided a timely acknowledgement of the gift, but it did not include the goods-or-services statement. Even though the couple received a later statement containing the required statement, following a reminder by the IRS, the tax court ruled that the first acknowledgement was incomplete and the second acknowledgement was not contemporaneous (meaning it was not received before the couple filed its 2007 tax return). Law professor Paul Caron has the whole story here.
According to the IRS, “A charitable organization must provide a written disclosure statement to donors of a quid pro quo contribution in excess of $75. A quid pro quo contribution is a payment made to a charity by a donor partly as a contribution and partly for goods or services provided to the donor by the charity. For example, if a donor gives a charity $100 and receives a concert ticket valued at $40, the donor has made a quid pro quo contribution. In this example, the charitable contribution portion of the payment is $60. Even though the part of the payment available for deduction does not exceed $75, a disclosure statement must be filed because the donor’s payment (quid pro quo contribution) exceeds $75.”
In this example the charity might write in its acknowledgement, “Thank you for your cash contribution of $100 that the (nonprofit) received on (date). In exchange for your contribution, you received a concert ticket with an estimated fair market value of $40.” The taxpayer may deduct the difference between the gift amount and the value of the ticket.
When no goods or services are received in exchange for the gift, the charity might write, “Thank you for your cash contribution of $100 that the (nonprofit) received on (date). No goods or services were provided in exchange for your contribution.”
By not including this statement in its first acknowledgement, the church failed to steward the gift, and the donors lost a sizable tax deduction.