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A Simple ‘Thank You’ Won’t Do – Documenting Charitable Contributions

The charitable tax deduction provides a huge incentive to donors – without it, many charities would be hard pressed to find funding for their important work. Unfortunately, IRS requirements for documenting charitable contributions have become increasingly complex and, as demonstrated by the two recent tax court cases discussed below, innocent mistakes may cause donors to miss out on significant tax deductions.

To avoid such mistakes, charities and donors should be sure to understand their obligations, and consult with a tax advisor whenever a question arises about how to acknowledge or document a particular donation.

Substantiating Contributions Worth $250 or More

Under the Internal Revenue Code, a donor may only take a tax deduction for a cash or in-kind donation worth $250 or more if the contribution is substantiated by a contemporaneous written acknowledgment from the charity that states all of the following:

  • The amount of the cash donation, and a description (but not the value) of any property donated;
  • Whether the charity provided any goods or services in exchange for the contribution; and
  • If the charity provided any goods or services (such as a meal at a fundraising gala), a description and estimate of the value of the goods or services, or a statement that such goods or services consisted only of “intangible religious benefits.”

To meet the “contemporaneous” requirement, the donor must receive the acknowledgement before they file their tax return, or before the due date (including extensions) for filing the return, whichever comes first.

In the first tax court case – Durden v. Commissioner, T.C. Memo. 2012-140 (2012) – the Durdens lost out on a tax deduction of almost $23,000 because they did not have a receipt that included the required information. The Durdens had made several cash donations greater than $250 to their church in 2007, totaling $22,517. Their church provided them with a letter in January 2008 acknowledging their contributions, but the letter did not include the required statement that no goods or services were received in exchange. The IRS sent a notice of deficiency in April 2009, disallowing the Durdens’ charitable deductions. The Durdens attempted to remedy the situation by obtaining a second acknowledgment letter from their church, which corrected this oversight. However, this letter was obtained well after the Durdens filed their 2007 tax return, and the IRS rejected it too, because it did not meet the “contemporaneous” requirement. The Durdens’ were deprived of the charitable deduction to which they were entitled, due to a simple oversight by the charity. Once the IRS pointed out the error, it was too late to remedy it.

Substantiating Contributions Worth $5000 or More

It is probably no surprise that the substantiation requirements for donations valued at more than $5,000 are even more complex – and that the penalties for innocent mistakes are just as harsh.

In the second tax court case – Mohamed v. Commissioner, T.C. Memo. 2012-152 (2012) – the Mohameds were unable to deduct their contributions of over $18 million dollars, because of mistakes made in documenting their donations. Shirley and Joseph Mohamed, Sr. made several donations of real estate to their charitable remainder unitrust in 2003 and 2004. When Joseph Mohamed filled out Form 8283 (used to substantiate non-cash contributions of $500 or more), he made a number of mistakes and, despite the fact that Mr. Mohamed had undervalued the donated real estate, the tax court ultimately disallowed the entire charitable deduction.

The regulations state that the donor must obtain a qualified appraisal for any non-cash donations, such as real property, valued at $5000 or more. A qualified appraisal cannot be performed by either the donor or the donee. The donor must also attach a completed appraisal summary to their tax return and maintain certain records. Because Joseph Mohamed was a real-estate broker and certified real-estate appraiser, he valued the properties himself and signed the appraisal summary in his capacity as the appraiser, not realizing that, as the donor, he was disqualified from acting as the appraiser. The appraisal summary he prepared was also missing many of the statements required by the regulations.

The IRS audited the Mohameds’ 2003 tax return in 2005. After much back and forth, the Mohameds tried to remedy the deficiencies in their return by commissioning new independent appraisals of the properties. However, just like in the case of the Durdens, it was too little, too late. Because the independent appraisals were completed after the due date of the original tax return, the IRS could not consider them. The tax court, though it acknowledged the result was harsh, ultimately upheld the IRS’s decision and disallowed the entire deduction.

While many practitioners have called for reform of the regulations to prevent such outcomes, in the meantime both charities and donors must educate themselves about their obligations. Charities can help protect their donors by issuing complete, timely, and accurate receipts, and by reminding donors to carefully review significant donations with a trusted tax advisor to ensure that they get the full benefit of the deduction.

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who we work with

Our clients are diverse nonprofit organizations with a broad range of missions, as well as for-profit companies in evolving areas such as social enterprise, corporate philanthropy, joint ventures, technology-driven fundraising, and impact investing.

A.B. Data
AB InBev Foundation
Absolut Company
American Committee for the Weizmann Institute of Science
American Diabetes Association
American Friends of the Hebrew University
American Parkinson Disease Association
Americans for Ben Gurion University
Association of Fundraising Professionals
Avalon Consulting
Baton Rouge Area Foundation
Black Lives Matter Global Network Foundation
Bleeding Blue for Good Fund
Bradley Cooper’s One Family Foundation
BrightFocus Foundation
Brooks Brothers
Chadwick Boseman Foundation for the Arts
Changing Our World
Charity Defense Council
Christian Appalachian Project
Doctors of the World/ Medecins du Monde
Doctors Without Borders/ Medecins San Frontieres
Drug Policy Alliance
Duke University
Emory University
Estee Lauder Companies, Inc.
Feed The Children
Food For The Poor
Gerald R. Ford Presidential Foundation
Grameen Foundation USA
Hope for New York
International Campaign for Tibet
International Crisis Group
International Justice Mission
J. Crew Group
Johns Hopkins University
Lautman Maska Neill & Company
Lawyers Committee for Civil Rights Under Law

LSU Foundation
Marts & Lundy
Meyer Partners, LLC
Milken Institute
NAACP Foundation
National Alliance on Mental Illness (NAMI)
National Marrow Donor Program
National Park Foundation
Natural Resources Defense Council
North Carolina State University
North Shore Animal League
Operation Smile
PBS Foundation
Pernod Ricard USA
PetSmart Charities
PopSockets
Population Action International
Project ORBIS International
Public Interest Communication
Rails to Trails
Redeemer Presbyterian Church
Rockefeller Philanthropy Advisors
Save the Children Federation
Sesame Workshop
Simon Wiesenthal
SOS Children’s Villages – USA
Subaru of America
The Little Market
Touro University
United States Equestrian Team Foundation
United Way Worldwide
University of Connecticut
University of Virginia
Vote.org
Whitney Museum of American Art
World ORT
World Wildlife Fund
YWCA USA

A.B. Data
Absolut Company
American Committee for the Weizmann Institute of Science
American Diabetes Association
American Friends of the Hebrew University
American Parkinson Disease Association
Americans for Ben Gurion University
Association of Fundraising Professionals
Baton Rouge Area Foundation
BrightFocus Foundation
Burger King McLamore Foundation
Cancer Care
Carnegie East House and James Lenox House Association
Center for Car Donations
Changing Our World
Charity Defense Council
Christian Appalachian Project
Coca-Cola Scholars Foundation
Convoy of Hope
Cornell University
Doctors Without Borders/ Medecins San Frontieres
Drug Policy Alliance
Duke University
Emory University
Feed The Children
Gerald R. Ford Presidential Foundation
Grameen Foundation USA
Helen Keller Services
Hope for New York
Human Rights Watch
Humane Society of US
Indiegogo
International Campaign for Tibet
International Crisis Group
International Justice Mission
Japanese American National Museum
Johns Hopkins University
Lane Bryant Charities
Lautman Maska Neill & Company
Lawyers Committee for Civil Rights Under Law
LSU Foundation
Mattel
Meyer Partners, LLC
Milken Institute
National Breast Cancer Coalition
National Marrow Donor Program
Natural Resources Defense Council
North Carolina State University
North Shore Animal League
Obama Foundation
Operation Smile
PBS Foundation
Pernod Ricard USA
PetSmart Charities
Population Action International
Project ORBIS International
Public Interest Communication
Rails to Trails
Redeemer Presbyterian Church
Rock and Roll Hall of Fame and Museum
Rockefeller Philanthropy Advisors
Sesame Workshop
Simon Wiesenthal
SOS Children’s Villages – USA
Steinhardt Foundation
Subaru of America
United States Equestrian Team Foundation
University of Montana Foundation
University of Nevada, Las Vegas Foundation
Whitney Museum of American Art
World ORT
World Wildlife Fund
YMCA USA
YWCA of New York City
YWCA USA

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news & events

Our attorneys’ recent contributions to the media and nonprofit sector publications.

news & events

Check out our attorneys’ recent contributions to the media and industry publications.

Secure Your Data – Seriously, AFP New York Chapter News
As Jon Dartley, a data privacy and security attorney at Perlman and Perlman says, “It is vital to have the appropriate legal terms in the contract to protect your interests.”  Find out what your liability limit is.  Have it in writing who bears the responsibility and cost of a data breach.  And, have the vendor agree on a specific timeframe within which they need to advise you of a data breach.

Warning: Don’t Cut Legal Corners When Mixing Social And Business Impact,  Forbes
Particularly striking is that (Karen) Wu believes this is the “first multi-state regulatory activity involving cause marketing in almost two decades.”

Is stealing, then giving back, OK?
Cliff Perlman lends his advice on theft within a nonprofit.

Buyer Beware: Negotiating Terms in Technology Agreements
Jon Dartley provides tips on negotiating contracts with technology vendors.

Four Ways Charitable Giving Could Change with a Tax Overhaul
Cliff Perlman remarks on the possible threat of a change to charitable deduction.

How To Deal With Residual Data, Nonprofit Times
Jon Dartley’s advice on addressing “data exhaust”.

Secure Your Data – Seriously, AFP New York Chapter News
As Jon Dartley, a data privacy and security attorney at Perlman and Perlman says, “It is vital to have the appropriate legal terms in the contract to protect your interests.”  Find out what your liability limit is.  Have it in writing who bears the responsibility and cost of a data breach.  And, have the vendor agree on a specific timeframe within which they need to advise you of a data breach.

Warning: Don’t Cut Legal Corners When Mixing Social And Business Impact,  Forbes
Particularly striking is that (Karen) Wu believes this is the “first multi-state regulatory activity involving cause marketing in almost two decades.”

Is stealing, then giving back, OK?
Cliff Perlman lends his advice on theft within a nonprofit.

Buyer Beware: Negotiating Terms in Technology Agreements
Jon Dartley provides tips on negotiating contracts with technology vendors.

Four Ways Charitable Giving Could Change with a Tax Overhaul
Cliff Perlman remarks on the possible threat of a change to charitable deduction.

How To Deal With Residual Data, Nonprofit Times
Jon Dartley’s advice on addressing “data exhaust”.

perlman & perlman philanthropic sector law firm blue and green logo

click to exit page

perlman & perlman philanthropic sector law firm blue and green logo

click to exit page

silk lanterns

who we work with

Our clients are diverse nonprofit organizations with a broad range of missions, as well as for-profit companies in evolving areas such as social enterprise, corporate philanthropy, joint ventures, technology-driven fundraising, and impact investing.

who we work with

Our clients are diverse nonprofit organizations with a broad range of missions, as well as for-profit companies in evolving areas such as social enterprise, corporate philanthropy, joint ventures, technology-driven fundraising, and impact investing.

A.B. Data
AB InBev Foundation
Absolut Company
American Committee for the Weizmann Institute of Science
American Diabetes Association
American Friends of the Hebrew University
American Parkinson Disease Association
Association of Fundraising Professionals
Avalon Consulting
Baton Rouge Area Foundation
Black Lives Matter Global Network Foundation
Bleeding Blue for Good Fund
Bradley Cooper’s One Family Foundation
BrightFocus Foundation
Brooks Brothers
Chadwick Boseman Foundation for the Arts
Changing Our World
Charity Defense Council
Christian Appalachian Project
Doctors of the World/ Medecins du Monde
Doctors Without Borders/ Medecins San Frontieres
Drug Policy Alliance
Duke University
Emory University
Estee Lauder Companies, Inc.
Feed The Children
Food For The Poor
Gerald R. Ford Presidential Foundation
Grameen Foundation USA
Hope for New York
International Campaign for Tibet
International Crisis Group
International Justice Mission
J. Crew Group
Johns Hopkins University
Lautman Maska Neill & Company
Lawyers Committee for Civil Rights Under Law
LSU Foundation

Marts & Lundy
Meyer Partners, LLC
Milken Institute
NAACP Foundation
National Alliance on Mental Illness (NAMI)
National Marrow Donor Program
National Park Foundation
Natural Resources Defense Council
North Carolina State University
North Shore Animal League
Operation Smile
PBS Foundation
Pernod Ricard USA
PetSmart Charities
PopSockets
Population Action International
Project ORBIS International
Public Interest Communication
Rails to Trails
Redeemer Presbyterian Church
Rockefeller Philanthropy Advisors
Save the Children Federation
Sesame Workshop
Simon Wiesenthal
SOS Children’s Villages – USA
Subaru of America
The Little Market
Touro University
United States Equestrian Team Foundation
United Way Worldwide
University of Connecticut
University of Virginia
Vote.org
Whitney Museum of American Art
World ORT
World Wildlife Fund
YWCA USA

A.B. Data
Absolut Company
American Committee for the Weizmann Institute of Science
American Diabetes Association
American Friends of the Hebrew University
American Parkinson Disease Association
American Rivers
Association of Fundraising Professionals
Baton Rouge Area Foundation
BrightFocus Foundation
Burger King McLamore Foundation
Cancer Care
Carnegie East House and James Lenox House Association
Center for Car Donations
Changing Our World
Charity Defense Council
Christian Appalachian Project
Coca-Cola Scholars Foundation
Convoy of Hope
Cornell University
Doctors Without Borders/ Medecins San Frontieres
Drug Policy Alliance
Duke University
Emory University
Feed The Children
Gerald R. Ford Presidential Foundation
Grameen Foundation USA
Helen Keller Services
Hope for New York
Human Rights Watch
Humane Society of US
Indiegogo
International Campaign for Tibet
International Crisis Group
International Justice Mission
Japanese American National Museum
Johns Hopkins University
Lane Bryant Charities
LSU Foundation
Mattel
Meyer Partners, LLC
Milken Institute
National Breast Cancer Coalition
National Marrow Donor Program
Natural Resources Defense Council
North Carolina State University
North Shore Animal League
Obama Foundation
Operation Smile
PBS Foundation
Pernod Ricard USA
PetSmart Charities
Population Action International
Project ORBIS International
Public Interest Communication
Rails to Trails
Redeemer Presbyterian Church
Rock and Roll Hall of Fame and Museum
Rockefeller Philanthropy Advisors
Sesame Workshop
Simon Wiesenthal
SOS Children’s Villages – USA
Steinhardt Foundation
Subaru of America
United States Equestrian Team Foundation
University of Montana Foundation
University of Nevada, Las Vegas Foundation
Whitney Museum of American Art
World ORT
World Wildlife Fund
YMCA USA
YWCA of New York City
YWCA USA
Lautman Maska Neill & Company
Lawyers Committee for Civil Rights Under Law

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We strive to maintain a culture characterized by respect, opportunity, diligence, mutual empowerment, entrepreneurship, and fair reward for efforts made on behalf of clients and the firm.

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