Church Causes Donors to Lose IRS Charitable Deduction: Are your donors at risk?

17 Jan

Church Causes Donors to Lose IRS Charitable Deduction: Are your donors at risk?

From: Val Walker, Minnesota United Methodist Foundation

On May 17, 2012, David and Veronda Durden v. IRS, the courts ruled that the

court

Durden’s $22,517 donation to their church could not be counted as a charitable tax deduction. On their 2007 joint income tax return, Mr. and Ms. Durden claimed a deduction of $22,517 for charitable contributions of cash and checks to their church.

The IRS denied the Durdens’ deduction because they did not have the proper acknowledgement of their contributions from the church. The Durdens sued in Tax Court arguing, among other things, that they “substantially complied” with the statutory acknowledgement requirements. They had statements acknowledging the gifts from their church, along with the canceled checks, and produced these as evidence. The court disagreed with the Durdens and did not allow their deductions.

The courts said that the acknowledgement did not contain the wording, “no goods or services were received in exchange for this gift.” The church attempted to issue new acknowledgements to the Durdens, however these were not allowed. The courts referred to tax code that states that the acknowledgements must be issued on or before the filing due date, or the date that the filing is made.

Is your church in compliance?

In order to protect committed church members from a fate similar to the Durdens, church acknowledgements must contain amount (value) and date of the gift, along with one of the following phrases:

“No goods or services were provided in exchange for your contributions,” or

“No goods or services were provided in exchange for your contributions other than intangible religious benefits.”

Information about goods and services received from the church is important because, generally, a donor must reduce the amount of the contribution deductions by the fair market value of the goods and services provided by the church. This provision was added to the tax code in 1993 to curb some abuses.

Refer to the IRS tax code: 26 USC 170 – Charitable, etc., contributions and gifts

 

Please don’t hesitate to contact us if you have any questions.

Blessings!

Val Walker

Executive Director

Contact Val at 612-230-3337 or at val.walker@mnumf.org

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