If you’re a frequent or sizable donor to a charitable organization, you may be recognized with membership in a special group or level. However, simply attaining that status and being acknowledged for it does not, on its own, warrant any charitable deduction. The taxpayer in a new case, Aulisio, TC Memo 2024-29, 3/13/24, is a CPA who failed to meet the minimum standards.
Most tax professionals, as well as knowledgeable taxpayers, are familiar with the basic rules for substantiating charitable deductions. Generally, the type of substantiation required depends on the nature and size of the gift. For example, different rules apply to monetary contributions and gifts of property under the prevailing IRS regulations.
For donations of less than $250, you must obtain a receipt from the organization, unless it is impractical to do so, such as when you drop off items at an unattended site. In that case, you must maintain reliable records, including the name of the organization, the date and location of the contribution, a description of the property and the method used to determine fair market value (FMV). If the gift is valued at $250 or more, you have to obtain a contemporaneous written acknowledgment from the charity describing the donated property, plus a statement whether any goods or services were received in exchange and a good-faith estimate of the value of the gift.
Facts of the new case: The taxpayer in this case is a CPA residing and practicing in California. Among numerous other individual and business issues being contested, the IRS denied a charitable deduction of $500 in 2015. Although he didn’t claim this deduction on his 2015 return, the CPA asserted in a pre-trial memorandum that the write-off should be allowed for a contribution to the Friends of the Los Angeles Philharmonic.
To substantiate this deduction, the CPA introduced into evidence a letter without any date from the “Friends of the LA Phil.” The letter states: “Thank you for your gift! Your membership has been upgraded. You are now at the Rhapsody ($500) membership level.”
As stated above, a charitable donation to a qualified organization must be substantiated by a contemporaneous written acknowledgment providing the amount of cash and a description of any donation of property. In addition, the regs require a statement regarding whether the organization provided any goods or services in consideration for the contribution and a description and good-faith estimate of the value of any such services.
Obviously, the CPA failed to meet those requirements. The letter does not state the amount that he supposedly contributed or whether it was a cash contribution or a contribution of property other than money. Also, the letter doesn’t indicate whether the organization provided any goods or services in exchange for the donation, as is frequently the case with such memberships. Finally, the letter fails to provide any description and estimate of the value of any goods and services that were provided.
As a result, the CPA’s claim hit a sour note. The Tax Court upheld the denial of a charitable donation to attain membership in the Friends of LA Philharmonic.
Thanks for reading CPA Practice Advisor!
Subscribe Already registered? Log In
Need more information? Read the FAQs
Tags: Taxes
