21 October 2019 - Article
A recent US Tax Court case reminds us that individuals hoping for a US income tax deduction for gifts to charity must obtain contemporaneous written substantiation – often called a gift receipt – from the recipient charity. The deduction may be denied without a receipt even if the charity is a private foundation and even if the individual donor is a director or trustee of the charity. To be valid, the written gift receipt also must state whether the donee charity provided any goods or services to the donor in consideration for the gift and their value. While this has long been the rule for charitable contributions of $250 or more, the US Tax Court recently agreed with the Internal Revenue Service that a donor’s charitable deductions should be denied because the donor did not obtain a gift receipt, even though there was no question the gifts were made (Jolene M. Villareale v. Commissioner, T.C. Memo. 2013-75).
Generally, a gift receipt is required for any single charitable contribution of $250 or more and must include (i) the amount of cash or description of property contributed, (ii) whether any goods or services were provided to the donor in consideration of the contribution (for example, attendance at a gala dinner), and (iii) a good-faith estimate of the value of any goods or services provided. To qualify as contemporaneous, the donor must obtain the gift receipt by the earlier of the date on which she files a tax return or the date on which the tax return is due. It is best practice for all donors to request a gift receipt when the gift is made, and most US charities issue gift receipts as a matter of course.
However, this practice may not be as common for donor-managed charities or private foundations, where the donor stands on both sides of the transaction (i.e., as a donor and charity director/trustee). This was the case in Villareale and the taxpayer argued that it would have been futile for her to issue a gift receipt to herself. Further, she was able to substantiate her contributions with both her and the charity’s bank records, and argued that those bank records evidenced substantial compliance with the rule. Critically, the IRS did not dispute that the gifts had been made – however, the IRS argued, and the Tax Court agreed, that because no gift receipt was issued stating whether the donor received any goods or services in consideration for her contributions the deduction should be denied.
The bottom line? Always ensure you have a gift receipt even if the donation is to your own foundation.