Tuesday, February 3, 2015

Questionable Tax Court Summary Opinion Allows Partial Charitable Contributions Deduction

In Lain v. Commissioner, T.C. Summary Opinion 2015-5 (Feb. 2, 2015), the United States Tax Court issued a summary opinion allowing partial deductions for medical and dental expenses, charitable contributions, and other expenses claimed by the taxpayers.  As to their charitable contributions, the taxpayers claimed a deduction of $8,880, consisting of $5,730 by cash or check and $3,150 worth of clothing.

At trial, one of the taxpayer’s submitted a canceled check for $95 made payable to a local church, and he testified that he and his wife weekly donated $20 in cash to the church.  The taxpayers, however, were unable to substantiate many of their expenses because their records were destroyed by water from a pipe that had burst. 

Citing several cases, the Tax Court observed the principle that, when a taxpayer’s records suffer destruction on account of circumstances beyond the taxpayer’s control, she may substantiate her claimed expenses through reasonable reconstruction.  Two paragraphs of the opinion set forth the Tax Court’s disposition of the claimed charitable contributions deduction:

 

Petitioners contend that they are entitled to a Schedule A charitable contribution deduction of $8,880. In general, section 170(a) allows a deduction for any charitable contribution by the taxpayer made within the taxable year. Charitable contribution deductions are subject to the recordkeeping requirements of section 1.170A-13(a), Income Tax Regs., for contributions of money, and section 1.170A-13(b), Income Tax Regs, for contributions of property other than money. Where the contribution is $250 or more, section 170(f)(8) requires the taxpayer to substantiate the claimed contribution with a written contemporaneous acknowledgment from the donee organization. If a taxpayer makes a charitable contribution of property other than money in excess of $500, the taxpayer must maintain written records showing the manner of acquisition of the property and the approximate date of acquisition. See sec. 1.170A-13(b)(3), Income Tax Regs.

 

At trial Mr. Lain submitted a canceled check for $95 payable to St. Timothy Catholic Church. In addition, he credibly testified that he placed $20 in cash “into the plate” when attending weekly church services. Mr. Lain also credibly testified that petitioners made some donations of property to qualified charitable organizations. On the basis of petitioners’ documentary evidence and Mr. Lain’s credible testimony, we find that petitioners contributed at least $1,095 in money (check and cash) to St. Timothy Catholic Church and at least $200 in property other than money to qualified charitable organizations. Consequently, we hold that petitioners are entitled to deduct $1,295 for charitable contributions for 2010. [footnote omitted]

 

I am perplexed by the allowance of a deduction for some of the cash placed in the offering plate.  Although the opinion discusses section 170(f)(8) of the Internal Revenue Code (the “Code”), it does not mention Code section 170(f)(17), which provides as follows:

 

No deduction shall be allowed under subsection (a) for any contribution of a cash, check, or other monetary gift unless the donor maintains as a record of such contribution a bank record or a written communication from the donee showing the name of the donee organization, the date of the contribution, and the amount of the contribution.

 

This provision was added by the Pension Protection Act of 2006, so it governs the taxpayers’ year in question, notwithstanding that the Treasury regulations cited by the court do not reflect the statutory change.  It is possible that the cash donated by the taxpayers was placed in an envelope that identified the taxpayers and allowed the church to authenticate the donations, and that the church sent acknowledgments to the taxpayers that were destroyed by the water leak.  But such facts are never stated in the opinion.  The facts described in the opinion read as though the taxpayers just placed cash directly in the plate.  No deduction is available in such a case.

Of course, under Code section 7463(b), this summary opinion cannot be cited as precedent. 

 

JRB

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