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Acknowledging Charitable Donations and the $250 Receipt Rule

While the phrase “the devil is in the details” is commonly used, its origins are unknown. However, it is pretty easy to imagine someone inventing it while dealing with the Internal Revenue Service. Sometimes even the simplest and seemingly minor mistakes will cause the IRS to cry foul and, in some instances, those mistakes can have significant consequences. A glaring example of such a mistake occurred in a 2012 case before the US Tax Court.

Durden v. Commissioner

In Durden v. Commissioner, a married couple claimed a $25,000 charitable deduction. The donations had been made to their church in various amounts throughout 2007. In taking the deduction, the taxpayers relied on a January 2008 letter from their church acknowledging the donations.

Unfortunately, the 2008 letter did not include a statement that the church had not provided goods or services to the taxpayers in return for their donations. Because a tax rule commonly known as the $250 Receipt Rule specifically requires such a statement in donation acknowledgments for gifts exceeding $250, the IRS deemed the 2008 letter inadequate.

Too Little, Too Late

In response, the taxpayers obtained a June 2009 letter from the church that included the required statement. However, the IRS rejected the 2009 letter as untimely because of another tax rule that generally requires taxpayers to receive donation acknowledgments by the date on which they file their applicable returns. In this instance, the 2009 letter was received by the taxpayers well after the return was filed in 2008.

The taxpayers made the common-sense argument that they substantially complied with the rules. Unfortunately, the court disagreed, stating that they could find no provision in the relevant laws allowing for substantial compliance. In other words, the rules are the rules. As a result, the court upheld the IRS’s decision to disallow the charitable deductions despite the fact that no one was disputing that the actual donations were made.

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What can we learn?

What is the takeaway from all of this? First, while the IRS may not be “the devil”, they certainly are sticklers for the details and the rules. Second, because it is essential for tax-exempt organizations to protect their donors’ ability to deduct donations, great care should be taken to ensure that the $250 Receipt Rule and other acknowledgment rules are followed. IRS Publication 1771 provides some very helpful information about those rules, and of course we at Herr and Low are here to answer any questions you may have.

In the near future, we will provide insight on how to handle quid pro quo gifts in which some goods and services are provided to the donor in exchange for donations.

Author Bio:

Matt Grosh is an attorney at Herr & Low. He practices in the areas of estate planning and administration, corporate law, nonprofit organizations and taxation.

This blog is being published for educational purposes only as well as to provide general information and a basic understanding of the law, not to provide specific legal advice. By entering this site you understand that there is no attorney client relationship between you and the publisher. This site should never be used as a substitute for competent legal advice from a licensed professional attorney in your state.

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