A $64 Million Tax Question – When is a Written Acknowledgment for a Charitable Donation Needed?
Year-end is a time for many taxpayers to satisfy their philanthropic and tax-related charitable goals; however, it is important to remember that the simple act of giving does not necessarily result in the realization of desired income tax benefits from a charitable donation. The Internal Revenue Service, under Internal Revenue Code (Code) § 170(f)(8)(A) and (B) requires that any taxpayer desiring to claim an income tax deduction for a charitable donation of $250 or more in any tax year is required to substantiate the donation by obtaining a contemporaneous written acknowledgment (CWA). The CWA must be obtained from the charity by the date on which the taxpayer files the return claiming the deduction, including: (1) the name of the charity, (2) the date of the contribution, (3) the amount of any cash contribution, (4) a statement of whether or not goods or services were provided by the charity in exchange for the contribution, (5) a description and estimated value of any such goods or services provided by the charity to the taxpayer, and (6) if applicable, in the case of contributions to organizations that operate exclusively for religious purposes, a statement of any intangible religious benefits provided by the charity to the taxpayer.
In 15 West 17th Street LLC v. Comm’r, 147 TC No. 19 (Dec. 22, 2016), the taxpayer learned of the rigidity of this requirement when it failed to obtain a CWA for a charitable donation of property valued at $64.49 million. Instead, the taxpayer relied on IRC §170(f)(8)D) which provides that a donation may be substantiated if the charitable donee files a return “on such form and in accordance with such regulations as the Secretary may prescribe” that contains the information required in a CWA. The Tax Court disagreed with the taxpayer’s reliance on this provision because the Treasury has not yet issued regulations to this effect and the provision is not “self-executing.” Until such time as the Treasury issues such regulations, a CWA is required. The Tax Court went on to deny the taxpayer its $64.49 million income tax deduction for the charitable donation.
As tax season rapidly approaches, taxpayers desiring to claim deductions for 2016 charitable donations should carefully review the receipts and acknowledgments for such donations to ensure that they are in compliance with applicable substantiation requirements.