The IRS denied David and Veronda Durden a $25,000 deduction. You won’t believe why.
The devil is in the details is the lesson from David and Veronda Durden who were denied a $25,000+ deduction on their tax returns for a charitable contribution they made to their church. Why? Because of a simple technicality, A Simple Tax Error. The IRS disallowed the deduction, increasing their tax liability by thousands of dollars, because the proof they had confirming the donation didn’t meet all of the IRS’ strict requirements. The most shocking part is that the Tax Court recently ruled in favor of the IRS, leaving no recourse for the generous Durdens.
The Durdens made the charitable contributions over the course of a year by writing checks on a regular basis to their church. The checks were all over $250 each. At the end of the year, the church sent them an annualized summary of the donations, which the Durdens kept as proof. The IRS argued that the annualized summary failed to meet the four requirements for proof of a cash donation over $250 and therefore was not valid:
It must be in written form and contemporaneous, which means you must receive the proof by the due date of your tax return or by the date you actually file the tax return, whichever is earlier.
The proof must include the amount donated.
The proof must state whether the recipient organization provided any goods or services in consideration for the donation.
If any goods or services were received, the proof must include a good faith estimate of their value. If the donors only received “intangible religious benefits,” then it must explicitly state that.
The statement the Durdens received failed on point 4. They argued that they “substantively” complied and that it was just a technicality that the proper language wasn’t on the annualized summary. The IRS, and the Tax Court, didn’t care.
Don’t expect the IRS to be reasonable when it comes to getting more of your money, whether it comes to your charitable donations or just general business deductions. Take every precaution and follow every regulation to the letter.
