Charitable deduction denied for donation to taxpayers' own Temple

Charitable deduction denied for donation to taxpayers' own Temple

Davis, TC Memo 2018-56

IRS denied taxpayers' deduction for cash and noncash charitable contribution to the inactive church they had founded because they failed to meet the substantiation requirements.

Background. Charitable contribution deductions are allowable only if the taxpayer satisfies substantiation requirements. (Code Sec. 170(a)(1)) The nature of the required substantiation depends on the size of the contribution and on whether it is a gift of cash or property.

For contributions of $250 or more, a taxpayer generally must obtain a contemporaneous written acknowledgment from the donee. This acknowledgment must:

1. Include a description (but not value) of any property other than cash contributed;
2. State whether the donee provided any goods or services in exchange for the gift; and
3. If the donee did provide goods or services, include a description and good faith estimate of their value.

The acknowledgment is contemporaneous if the taxpayer obtains it from the donee on or before the earlier of:

1. The date the taxpayer files a return for the year of contribution; or
2. The due date, including extensions, for filing that return. (Code Sec. 170(f)(8), Reg. § 1.170A-13(f))

For noncash contributions in excess of $500, taxpayers are required to maintain written records that must include, among other things:

1. The approximate date the property was acquired and the manner of its acquisition;
2. A description of the property in detail reasonable under the circumstances;
3. The cost or other basis of the property;
4. The fair market value of the property at the time it was contributed; and
5. The method used in determining its fair market value. (Code Sec. 170(f)(11)(B), Reg. § 1.170A-13(b)(2)(ii)(C); Reg. § 1.170A-13(b)(2)(ii)(D); Reg. § 1.170A-13(b)(3)(i)(A); Reg. § 1.170A-13(b)(3)(i)(B))

No deduction is allowed for contributions of clothing or "household items" unless such items are "in good used condition or better". (Code Sec. 170(f)(16)(A)) The term "household items" includes furniture, furnishings, electronics, appliances, linens, and other similar items. (Code Sec. 170(f)(16)(D))

Facts. For 2012, Bernard and Willette Davis (the taxpayers) claimed $3,091 of charitable contribution deductions to the South Broward Church of Christ (Church), including $1,700 of cash and $1,391 of noncash contributions. On their Form 8283 (Noncash Charitable Contributions), the taxpayers described their noncash contributions as clothing, footwear, accessories, and household items.

The Church, which was registered as a nonprofit corporation in Florida in '95, had been founded by the taxpayers and another family in '94 in the taxpayers' house. Mr. Davis was the Church's president and the senior minister. The Church collected money and clothing to donate to the poor and held weekly services and fellowship until the 2008 economic crisis forced Mr. Davis to seek employment outside Florida.

In 2012, the Church had no bank accounts and no longer held weekly services and congregational meetings. The only activity of the Church during 2012 that was specifically identified by Mr. Davis was the taxpayers' giving away clothing and other items to individuals they considered needy.

To substantiate their donation, the taxpayers provided a letter on Church letterhead, dated Apr. 19, 2013, and signed by Mr. Davis, confirming the amounts of their cash and noncash contributions to the Church in 2012.

Court's conclusion. The Tax Court sustained IRS's disallowance of the taxpayers' charitable contribution deductions. Based on the record, the Court surmised that the taxpayers may have used their otherwise inactive church to try to deduct their direct gifts to their friends.

The Court reasoned that the only documentation that the taxpayers offered to substantiate their contributions to the Church in 2012 was a letter signed by Mr. Davis as the Church's president and senior minister. The letter wasn't contemporaneous with the alleged contributions, and the taxpayers offered no evidence at all of regular recordkeeping procedures. Not only did this letter fail to meet the substantiation requirements for both cash contributions and noncash contributions, but the Court found it unreliable.

In addition, the Tax Court did not find Mr. Davis' testimony to be credible on this issue. The fact that Mr. Davis signed the letter himself weighed heavily against its reliability.

Finally, the taxpayers introduced no evidence on the condition of the clothing and household items that they allegedly donated to the Church.