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Tax Court Issues Reminder: Don’t Forget that “Contemporaneous Written Acknowledgement” for Charitable Deductions!

As the 2016 tax return filing season begins, taxpayers must remember that in order to claim a charitable deduction on their taxes they must obtain a “contemporaneous written acknowledgement” from each charitable organization to which they made a donation of more than $250. As the Tax Court recently confirmed, there is no exception to this requirement until the IRS issues final regulations.

Section 170(f)(8)(D) of the Tax Code generally requires a donor claiming a charitable deduction of $250 or more to obtain and keep a contemporaneous written acknowledgement (i.e., receipt) from the charitable organization receiving the donation. The writing must include the name of the charity, date of the donation, a reasonably-detailed description of the donated property, including any clothing and household items, and the value of any goods, services or other consideration provided to the taxpayer in exchange for the donation.

Congress provided an exception to this rule in Section 170(f)(8)(D) where the charitable organization files a return “on such form and in accordance with such regulations” promulgated by the IRS. In 2015, the IRS proposed regulations to implement the exception to the contemporaneous written acknowledgement requirement, but those regulations were later withdrawn amid push-back from many charitable organizations who expressed concern over their proposed reporting responsibilities. Thus, there is currently no exception to the rule.

In 15 West 17th Street LLC (147 TC No. 19), the Tax Court rejected a taxpayer’s argument that the exception was self-executing, i.e., an amended return filed by the charitable organization satisfied the exception. The Tax Court, however, held the exception is not self-executing and will remain unavailable until final regulations are issued by the IRS.

The taxpayer in 15 West 17th Street LLC owned real property and granted a perpetual conservation easement over part of the property to a charitable organization claiming a charitable deduction of $64 million. The charitable organization acknowledged receipt of the easement in a written letter. The letter, however, failed to note whether the charitable organization provided any goods, services, or other consideration to the taxpayer in exchange for the donation. The IRS disallowed the deduction and the taxpayer appealed to the Tax Court.

On appeal, the Tax Court found that the charitable organization at issue filed an amended return (Form 990) after the taxpayer had filed its appeal in the case. The amended return described the taxpayer’s donation and included a statement that the charitable organization provided the taxpayer with no goods or services in consideration for the donation. The taxpayer argued that the amended return eliminated the need for a contemporaneous written acknowledgement.

The Tax Court disagreed, however, holding that Section 170(f)(8)(D) is not self-executing. As the IRS has yet to issue regulations clarifying the extent of the exemption, the Tax Court ruled the taxpayer’s reliance on any exemption under Section 170(f)(8)(D) was misplaced.

Based on the Tax Court’s ruling, all taxpayers should remember to request and retain a contemporaneous written acknowledgement from charitable organizations for all donations in excess of $250 in order to take a charitable deduction on their taxes. The acknowledgement must include the name of the charity, date of the donation, a reasonably-detailed description of the donated property, and the value of any goods, services or other consideration provided to the taxpayer in exchange for the donation whenever a charitable donation is made.

About the Author

Jordan Taylor is a Partner practicing out of our Madison office. He is a member of the Trusts & Estates, Business and Real Estate practice groups. Contact Jordan by email or by phone at (608) 252-9369.

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