Are Your Non-Cash Charitable Deductions Screaming, "Audit Me!"?

Posted on August 3 2011 by admin

During a past tax season, I reviewed a return for an executive who wanted to take a non-cash charitable deduction for his business suits.  Since it was years ago, I do not recall the amount he valued the suits at, $20,000 perhaps.  His “support” for the value was written in his handwriting on a piece of paper he sent in with his other tax data.  We had phone calls with him to discuss the need to get an appraisal to substantiate the value before we would report that amount as a deduction.  However, the executive did not want to get an appraisal. Even though he was likely to be audited and at risk for additional taxes and penalties, he was insistent on claiming that amount as a deduction.  Although we were obligated to prepare his return pursuant to contract with his former employer, we advised him we would do so only if our firm’s name as paid preparer was removed from the tax returns, which we ended up doing.

I do not know what happened after the executive filed the returns, because he was no longer a client.  However, a case that came out last June (Edmund Douglas Roberts v. Commissioner, T.C. Summ. Op. 2010-76), made me think of him.  In that case, the taxpayer wanted to take a tax deduction for 450 items of property he valued at $28,655.  He included a self prepared Form 8283 (which the IRS requires for non-cash donations of more than $500 now) with his tax return and reported gifts of primarily used clothing and towels, bedsheets, books, costume jewelry, children’s toys and glass lamps.  The IRS audited the return and assessed a deficiency of $10,482.    The court found there was no adequate description of the items or the method used for valuation and thus, denied the deductions.

What can we learn from my executive and the taxpayer in this case?  See my next blog to find out.

Jennie Ward