Wednesday, June 24, 2015

Charitable Noncash Contributions Again

Two recent cases involving deductions for noncash contributions are worth looking at as a reminder of the rules.

ROBERTA LEE HOWE claimed $7,100 of cash contributions and $2,500 of noncash contributions on her 2010 tax return.  IRS allowed $200 cash and $2,500 noncash.  Ms. Howe also claimed $4,400 of cash contributions and no noncash contributions on her 2011 return.  IRS allowed $380 of cash and $1,000 of noncash (these were deducted as part of the cash contributions although they were noncash).  This article focuses on her noncash contributions.

Many of the noncash items donated were inherited from her parents and sister.  Ms. Howe’s receipts lacked one or more of the following:  type of property donated, value of property donated, signature of anyone acting on behalf of the donee organization, or a statement to the effect that no goods or services were rendered in exchange for the donated property.  She had handwritten notes assigning values to each item of clothing and said the value guides came from Goodwill and the Salvation Army.  Her handwritten notes assigned the maximum value from the guides to each item with the exception of three coats.

Other failures for Ms. Howe’s noncash donations – 1) Many receipts had no description of the property donated, no values, and no signature of the person representing the charity, 2) the words “furniture”, “TVs”, “clothes and blankets”, and “TVs, stereo, living room furniture” as descriptions were not reasonably sufficient, 3) the statement regarding whether or not goods or services were provided was not on the receipts that were for more than $250, and 4) her handwritten notes did not describe the age or condition of the items donated.  A taxpayer that is unable to provide the acquisition date or the cost basis in the donated property can attach an explanatory statement to the tax return to be excused from these requirements per Regulation 1.170A-13(b)(3)(ii).  Ms. Howe did not attach such a statement.

KENNETH KUNKEL – During 2011 Kenneth Kunkel donated property to four separate charitable organizations.  The donations included books, household items, clothing, telescopes, jewelry, household furniture, and toys.  He testified that he dropped items off in large bins intended for after-hours drop-offs.  Other items were donated by leaving items outside his house for the charity’s scheduled pickups and the charity left a doorknob hanger saying only “Thank you for your contribution.”  Mr. Kunkel said he was careful to make sure the items in each batch were worth less than $250 so he wouldn’t need to get receipts.

Tax Court had no doubt the taxpayer donated property to charitable organizations but still denied his deduction of $37,315 because he failed the substantiation requirements.

Tax Court agreed with IRS’ denial of the deductions.  The Court determined the taxpayer had to aggregate “similar items of property” in order to determine the substantiation required.  The Court organized the donated items into the following categories for this purpose:

  • Clothing ($21,920 claimed value)
  • Books ($8,000)
  • Household furniture ($3,090)
  • Household items ($1,653)
  • Toys ($1,072)
  • Telescopes ($800)
  • Jewelry ($780)

The Court said Mr. Kunkel exceeded the $500 threshold for EACH category therefore had to meet the additional substantiation requirements.  He also had to meet the appraisal requirement for the Clothing and Books categories since they exceeded $5,000.

IN ADDITION the Court imposed a 20% negligence penalty.  It was not persuaded by Mr. Kunkel’s rationale that he didn’t need receipts because each batch of items was worth less than $250   The Court felt this rationale would not work on the contributions to the Church (which received most of the contributions) and was implausible.  Mr. Kunkel also failed to maintain reliable written records that included the dates of his contributions, where they were donated, and how he determined the fair market value of the items.

The recordkeeping rules are found in Regulation 1.170A-13.  It may be worth your time to reread this regulation and share a summary of it with your clients.  Be aware the regulation has not been updated since 1996.

Roberta Lee Howe, TC Summary Opinion 2015-26
Kenneth James Kunkel, TC Memo 2015-71

These cases can be found by going to, clicking on the Opinion Search tax, and entering the taxpayer’s name in the Case Name Keyword box.  We can also send you pdf copies of the cases and/or the recordkeeping Regulation attached to an email upon request.

This text has been shared with you courtesy of: David & Mary Mellem, EAs & Ashwaubenon Tax Professionals, 920-496-1065 (fax 920-496-9111).

©2015 Ashwaubenon Tax Professionals.  No reproduction of this article is permitted without the express consent of Ashwaubenon Tax Professionals, 2140 Holmgren Way, Suite 1040, Green Bay, WI 54304.

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