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Ask the taxgirl: Charitable Deductions and Documentation

June 22, 2010 · 18 comments

Taxpayer asks:

What is it that you need to show you gave things to Goodwill or your school other than an statment from them to that effect? My lady said something I do not understand. Is there some special form they have to fill out or what? Thanks. Oh yea I saw you on AOL.


(asked via facebook)

Taxgirl says:

This question is pretty timely because there’s a buzz going around that the receipts from Goodwill, Salvation Army, etc. are not sufficient on audit and that it’s not a good idea to make those kinds of donations for fear of being flagged. As with most of these tax-related rumors, this is only half true. Here’s the whole picture…

First, always get a receipt. Always.

Second, make sure that the receipt has the right info. For donations of goods or cash (or cash equivalent), you need to get a receipt from the charitable organization which has:

  • the name of the charity;
  • the date of the gift;
  • the location of the charity; and
  • a detailed description of the property donated.

If the organization doesn’t offer you a receipt, ask for one. If they’re taking your money or your stuff, they owe you a receipt. If they can’t be bothered, find a new organization (or decide that you’re okay with donating the stuff but not taking the deduction). But the excuse that nobody offered you a receipt won’t fly.

Third, keep good records. That means receipts. Scan or copy them and toss them in a “charitable deductions” folder (or Tupperware, as many of my clients are wont to do – that works, too!). But hold onto them. And make sure that they’re readable and accurate, for goodness sakes.

With all of that said, it is true that the IRS is cracking down on charitable deductions. That does not mean that you will run into a problem if you follow the rules.

The case that’s making the rounds these days (and causing all of those panicky emails) is this one: Roberts v Commissioner (downloads as a pdf). In this case, Mr. Roberts painted himself as a good guy who meant well. He gave to charity. And according to him, he gave a lot. He claimed nearly $30,000 in charitable contributions for just one year. And to his credit, he tried to file the right forms. As the Tax Court noted:

Included with his 2005 Federal income tax return was a self-prepared substitute Form 8283, Noncash Charitable Contributions, in which petitioner claims to have contributed more than 450 items of property consisting primarily of used clothing, but also including, among other things, towels, bedsheets, books, costume jewelry, children’s toys, and glass lamps.

But here’s where his claim fell apart. The Tax Court further noted that “Petitioner’s descriptions of the items of property allegedly contributed to charity are vague and include self- assigned estimates of their values.”

No, no, no. (Imagine me shaking my head here.)

When you make charitable contributions, you have to be somewhat specific on the receipt. “4 bags of clothes” (one of the entries on Mr. Roberts’ tax return) is not sufficient. While you don’t need to itemize each and every piece of clothing, some attempt at accurate description is important. I’ve said before that my mom is great at this: she’ll write “four pairs women’s dress slacks, hardly worn.”

If you’re donating items that have more value than a few bucks, be even more descriptive. Maybe even include the brand name, where appropriate. While I’m not a clothes horse (yes, my friends think my wardrobe is appalling… I’m totally a candidate for What Not To Wear), I occasionally have an item or two that I’ve made an effort on. If I donate those, I’ll write down “Jones New York ladies dress suit” or “Coach women’s briefcase.” You don’t need a SKU but a little bit of identifying info is a good idea.

Mr. Roberts didn’t have any substantiation for his donations. He couldn’t explain their values. And, worse, he didn’t include the dates of contribution. The donations were disallowed – and he got socked with a penalty.

Mr. Roberts also claimed deductions for cash allegedly contributed to panhandlers and the Salvation Army. If you’ve been reading the blog, you know that wouldn’t be sufficient without a receipt (picking up on a theme here?).

This case (which was in Tax Court and pursuant to Internal Revenue Code section 7463(b), may not be treated as precedent for any other case) is getting a lot of press and making some taxpayers nervous about charitable giving. The IRS is examining charitable gifts more closely but don’t use that as a reason to scale back. It is clear that you have to be thoughtful about your donations. If you are expecting a deduction in exchange for the donation, get proper documentation. Get receipts. Keep good records. But for goodness sake, keep giving.

Like any good lawyer, I need to add a disclaimer: Unfortunately, it is impossible to give comprehensive tax advice over the internet, no matter how well researched or written. Before relying on any information given on this site, contact a tax professional to discuss your particular situation.

Have a question? Ask the taxgirl!Now on Facebook at http://www.facebook.com/taxgirl

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{ 8 comments… read them below or add one }

1 Mary Kay Foss June 22, 2010 at 12:57 pm

On December 8, 2009 IRS offered tips for year-end donations in News Release 2009-114. One sentence was of interest to me: “If a donation is left at a charity’s unattended drop site, keep a written record of the donation that includes [the name of the charity, date of the contribution and a reasonably-detailed description of the donated property] as well as the fair market value of the property at the time of the donation and the method used to determine that value. Additional rules apply for a contribution of $250 or more.”

2 Michael June 22, 2010 at 5:14 pm

Reminds me of a poster I saw at a pizza parlor not too long ago:
“Anytime you do something nice for someone, get a receipt…just in case GOD is anything like the IRS.”

3 Shayna June 22, 2010 at 10:09 pm

Love the G-d is watching poster!

My understanding is that claiming under $500 in non-cash contributions without receipts is fine – it’s when you get over $500 that there’s a problem. Is that no longer the case? (It’s been a couple years since I left public accounting for corporate tax)

4 Kelly June 23, 2010 at 7:18 am

Shayna, the rules tightened significantly in 2007. Now, the rule is that ALL cash contributions must be supported by documentation (no matter the amount). You have to get a receipt for all non-cash contributions, too, though there is an exception for donations under $250 when getting a receipt is not practical – that’s what Mary Kay is referring to in her comment.

5 Dana Andrews, EA June 23, 2010 at 10:31 am

As an additional recommendation, I tell my clients to take digital pictures for what the donate and burn them to a CD each year. The IRS statement of “good and usable” is cleverly non descriptive as usual.
Dana Andrews, EA
http://blog.taxgeekblog.com/

6 Maureen E. June 23, 2010 at 12:49 pm

List each specific item of clothing? Really? We are lucky if we can get the bags of toddler clothes out of the garage and to Salvation Army before the kids turn 18. Of course, we aren’t claiming $30,000 in donations either – more like a couple of hundred, so hopefully the IRS will have some mercy for harried parents.

7 Kelly June 23, 2010 at 4:05 pm

Maureen,
I think you’ve hit the nail on the head. The IRS is looking for what’s reasonable here. I’ve dumped bags of baby clothes at the Salvation Army before, too, with pretty general descriptions. But I’ve also not been piggy with my deductions. There’s a big difference IMHO between writing “bag of baby onesies, good condition, $10″ and “4 bags clothes – $1000.” The latter really needs more detail under the rules.
In terms of pieces of clothing, I treat charitable donations like I do items for inheritance tax purposes: lump like with like when the value is de minimis. But if there are standout items, list them separately. I would list a Coach bag separately because if the thrift shop value on that is, say, $100 (because it retailed for $500), that’s very different from a used gym bag that would sell for $5 tops.
If you read the Tax Court’s opinion, one of the things they focused on is that Roberts had no reliable values for his items. When there are items that can easily be valued individually, I say do it. It will help if there are questions about the total of the deductions.

8 Leasa Magnuson June 25, 2010 at 12:56 pm

It would help if the Not for Profits would stop handing the receipts out like candy. I have had clients bring in stacks of blank receipts and tell me to just fill them out however I need them to support X amount of deductions. Do people really think this is an acceptable thing to tell their accountant?

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