Substantiation of Charitable Contributions

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CharitableImage source: Public domain via Wikimedia Commons

TC Memo 2010-45 (Friedman) demonstrates the importance of complying with recordkeeping requirements for charitable contributions (as found in Code Section 170(f)(8)(A) and Income Tax Regulation 1.170A-13).

In this case, the taxpayer claimed noncash charitable deductions for equipment donations. The IRS disallowed the deductions because the taxpayer did not provide contemporaneous written acknowledgements from the organizations who received the equipment, nor did they obtain properly completed appraisals.

At risk: $435,000 of deductions over two years, resulting in a tax increase of $162,248.

The court agreed with the IRS, and also imposed a 20% penalty for negligence and careless disregard of the rules and regulations.

Taxing Lesson: The value of gathering documentation to support deductions far outweighs the perceived nuisance factor.

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