A recent U.S. Tax Court case serves as a reminder of the importance of obtaining a proper acknowledgement letter from any charity to which you make a gift. For any charitable gift of more than $250, the taxpayer must receive a contemporaneous written acknowledgement of the gift from the charity. Among other things, the acknowledgement must state whether any goods or services were provided to the taxpayer in connection with the gift, and if they were, the value of these goods or services.
In Marshall Cohan v. Commissioner (Tax Court, January 10, 2012), a limited liability company of which the taxpayers were members transferred certain rights of first refusal over property to a charitable organization in a bargain-sale transaction. The acknowledgement from the charity listed some – but not all – of the consideration provided to the donor. The IRS argued, and the court agreed, that because the acknowledgement failed to list all of the consideration the donor received, the requirements to receive a deduction had not been satisfied. The court disallowed the entire deduction.
Both the IRS and courts strictly enforce the requirements for the written acknowledgement. You must secure a conforming acknowledgement for all charitable gifts over $250. In addition, if you make expenditures on behalf of a charity (such as hosting an event at your home), you need the charity to acknowledge those expenditures.