The IRS strictly enforces its requirements to claim charitable contributions. And yet, taxpayers continue to ignore these rules and find themselves being audited by the IRS. Often, not only do these taxpayers get assessed additional taxes for non-conformance of the tax rules, but are assessed penalties for their follies.
Let’s look at the case of Mark and Rose Ohde (T.C. Memo. 2017-137). When reading the facts of this case, not only is it difficult to believe that the taxpayers actually claimed these deductions, but that they went to Tax Court to appeal the IRS’s assessment.
The taxpayers argued before the Tax Court that they were entitled to a 2011 tax year noncash charitable contribution deduction of $145,250 for the more than 20,000 items of property they made to Goodwill. While residents of West Virginia, the taxpayers claim they drove to a Goodwill location in Maryland. Doing a search on the Internet for Goodwill store locations in West Virginia, 30 sites were found. How many rational persons would drive to another state to make a donation to Goodwill?
As a sampling, their 2011 claimed donations included 1,040 items of boy’s clothing, 811 items of girl’s clothing, 685 items of men’s clothing, 945 items of women’s clothing, 115 chairs, 36 lamps, 22 bookshelves, 20 desks, 20 chest of drawers, 16 bed frames, and 14 filing cabinets. Taxpayers provided for each delivery to Goodwill a one-page printed receipt that showed that Goodwill had received items in one or more of the following categories: clothing, shoes, media, furniture, and household items. There was no detail showing the number of items received or a description of the items received.
At trial, it was demonstrated that the taxpayer did not maintain a contemporaneous log showing the items contributed. Instead, the taxpayer used a TurboTax program called “Its Deductible”. For each item category entered into this program, the taxpayer showed the quantity as being “high”. The total dollar values in this program for each trip ranged from a low of $830 to a high of $14,999. However, not a single contributed item was reflected as a dollar value and the cost of the items donated was not shown. Only the grand totals were shown in this program.
If you think that the taxpayer’s were somewhat aggressive in 2011, consider the fact that for the years 2007-2010 they claimed a total of $292,143 for non-cash contributions and for 2012-2013 they claimed a total of $104,970 for non-cash contributions.
The Tax Court did not find the taxpayer’s testimony credible and agreed with the IRS. The taxpayer was allowed a $250 non-cash charitable contribution. To add insult to injury, it also tacked on an accuracy-related penalty.
What Can Be Learned from this court case? There is a Wall Street adage regarding the stock market. Bulls make money; bears make money; and hogs get slaughtered. This case is definitely one where the hog got slaughtered. The IRS has very strict rules regarding non-cash charitable contributions exceeding $250, additional rules when contributions exceed $500, and much stricter rules for contributions in excess of $5,000. When having your tax return prepared, do not overlook the benefits of having an experienced tax professional prepare your return.
If you would like to discuss your business or personal tax planning, tax preparation and other financial concerns with an experienced tax professional, we invite you to call 610-594-2601 today to make an appointment at our Exton PA CPA office to discuss your situation. You can also schedule a consultation at Click Here.
