David V. Fazio E.A. | Westbridge Accounting Services

Are you having problems with the IRS or Mass DOR???

Enrolled Agent Dave Fazio is authorized by the U.S. Treasury to represent his clients before all administrative levels of the IRS.

* Examinations (Audits)
* Wage Garnishments
* Bank Levies
* Offers in Compromise
* Appeals
* Monthly Payment Agreements

VERY Generous Couple Denied Charitable Deduction Due to Lack of Substantiation | By: Dave Fazio EA

TAX COURT DENIES DEDUCTION TO COUPLE WHO TITHED BECAUSE THEY DID NOT RECEIVE CONTEMPORANEOUS ACKNOWLEDGMENT FROM THEIR CHURCH

Back in 2005, the IRS changed the rules for charitable contributions (see sidebar for rules). As members of the Apostolic Assembly, the taxpayers in this case (read the five page summary opinion here) were required to tithe (give 10% of their income to the church). During 2005, they paid over $6500 to the Apostolic Assembly by writing 18 separate checks. On the memo line, the taxpayers wrote diezmos (Spanish for tithe). Ten of the checks (which totaled $6,100) were written for more than $250.

The taxpayers filed their return and deducted $6,552 for charitable contributions. Upon audit, the IRS disallowed all of the charitable deductions because the couple failed to adequately substantiate the deductions.

The taxpayers took their case to US Tax Court. The IRS did not question whether the couple made the donations to the Apostolic Assembly nor did it question whether the Apostolic Assembly was a bona-fide religious organization. The IRS appeared only to question the substantiation (or lack thereof) requirements.

The Tax Court denied the $6100 of couple’s deduction (the checks written for $250 or more) because the donation acknowledgment they had from the Apostolic Assembly was dated January 22, 2008 (which was the date of the trial). In its summary opinion, the court said, “The letter from the Apostolic Assembly and the 10 canceled checks indicating that they were for tithes are reliable. However, they do not meet the substantiation requirements set forth by the Internal Revenue Code or the Treasury Regulations”.

Now, my question is could you meet the stringent IRS requirement for charitable donations if you were audited? Here is a clear-cut case where the IRS and the Tax Court actually believed that the taxpayer made the donations but denied the deduction over a one page letter that was not contemporaneously written by the church!

Do you have a recordkeeping question? Feel free to call or email me with any questions.

Cash or Check Contributions -- What Do You Need to Keep?

If you made a donation to charity by cash, check, credit or debit card, the recordkeeping requirement depend on the amount of each individual donation.

Less than $250

Any of the following receipts will satisfy the IRS recordkeeping requirements:

· Cancelled check

· Account statement (for debit cards, credit cards or electronic funds withdrawals)

· Written letter, receipt or acknowledgment from charity OR

· Paystub/W2 for donations via payroll deduction and the pledge card

$250 or more

· A written acknowledgement that includes the amount you contributed, whether or not the charity gave you any goods or services as a result of the donation (including a value of the goods/services received) and (if the charity is a religious institution) a statement that you only received intangible religious benefits from your donation.

· The acknowledgment must be received by either the date you filed your tax return or the due date of the tax return (i.e. April 15^th or October 15^th if an extension was filed)… whichever is earlier.

· If the acknowledgment does not provide the date of the contribution, it must be further substantiated by a cancelled check or account statement.

For more information, see IRS Publication 526 Charitable Donations or feel free to contact me.

Site Mailing List

IRS Circular 230 disclosure: To ensure compliance with requirements imposed by the IRS, we inform you that any tax advice contained in this communication (including any attachments) was not intended or written to be used, and cannot be used, for the purpose of (i) avoiding tax-related penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any matters addressed herein.

David V. Fazio E.A. | Westbridge Accounting Services
161 Turnpike St.
W. Bridgewater, MA 02379
Phone: (508) 586-2600
Fax: (508) 580-8418
Email: Dave@westbridge-accounting.com

Site Powered By
��Website Builder
eBizWebpages.com website design