Thursday, July 17, 2008


This is a very important reminder – I hope my clients are reading it!

As a result of the Pension Protection Act of 2006 you must now have a hard-copy receipt for every single dollar you contribute to a church or charity in order to claim a tax deduction on Schedule A that will stand up to IRS audit.

The law effectively says that charitable contribution deductions will not be allowed for any monetary contributions by cash or check unless the donor maintains a record of the contribution. The record must be in the form of an actual cancelled check, a bank record (i.e. a copy of the front of the check included on your monthly bank statement), a credit card receipt (or an entry on a bank or credit card statement indicating a credit or debit card charge), a paystub, 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.

You can no longer tell the IRS that you put a five or ten dollar bill in the collection plate each week. You must write a check to the church for the $5.00 or $10.00 each week or you must take advantage of the church's "envelope" system, which will provide you with a written receipt at the end of the year.

The law does not say that all contributions of more than $50.00 or more than $100.00 must be documented, like the previous requirement for a written receipt for a single contribution of $250.00 or more. It says that all cash contributions must be documented. So if you give the the DAV a dollar for a poppy you must get a receipt!

A point of information - raffle tickets purchased from a church or charity are not deductible as a charitable contribution (unless you give the ticket back to the charity and do not participate in the drawing). They are considered to be the same as purchasing state lottery tickets. They may, however, be deductible as a gambling loss if you have winnings to report.

Congress has been cracking down on charitable contributions lately - first donations of motor vehicles (cars, motorcycles, boats, etc) and now cash contributions and non-cash contributions of used clothes and household items (only donations of used items in "good" condition can be deducted - Congress has not defined "good"). I do not deny that there has been widespread "over-estimation" of cash and non-cash contributions over the years, but it seems that, especially in the case of cash contributions, Congress has gone a bit overboard.

As the IRS is bogged down with the economic "stimulus" election year bribe checks it has not yet begun to audit 2007 returns. I will be interested to see if there is any increase in the audit of Schedule A charitable contributions. I will also be interested to see the IRS statistics for 2007 returns to see if there is a substantial drop in cash contribution deductions.

BTW, I have written a special report on DEDUCTING CHARITABLE CONTRIBUTIONS, which I will be updating for tax year 2008 before the end of the summer. Click here for more information.


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