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Gifts to Donor’s “Own” Organization Still Require Formalities

Tax-Exempt Organizations Law Alert Janice E. Rodgers, Jodi P. Pellettiere

The Tax Court recently denied the charitable contribution deductions of an individual who contributed money to a charitable organization that she created, where she failed to have the organization issue written acknowledgements of the contributions. This case confirms that taxpayers must conform to the letter of the law in order to benefit from the deduction for charitable contributions.

In Villareale v. Commissioner, T.C. Memo. 2013-74 (Mar. 12, 2013), the taxpayer, a Florida resident, co-founded a tax-exempt organization focused on rescuing animals. The taxpayer was responsible for the organization's finances and had physical and electronic access to its checking accounts. During one year, she made 44 contributions to the organization by electronic transfer from her personal bank account to the organization's account. Twenty-seven of the contributions were for less than $250 (totaling $2,393), and 17 were for more than $250 (totaling $7,629). While the transfers were reflected in both the taxpayer's and the organization's bank statements, the organization did not provide any written acknowledgement of the contributions to the taxpayer.

The Tax Court found that the taxpayer was not entitled to a charitable contribution deduction for the 17 contributions in excess of $250, because the organization failed to provide the taxpayer with the written acknowledgement required by Section 170(f)(8)(A) of the Internal Revenue Code. That Section requires donors of cash or property in excess of $250 to obtain from the donee a contemporaneous written acknowledgement of the donation, which must (i) describe any property contributed, (ii) state whether any goods or services were provided in consideration for the donation, and (iii) describe and provide a good-faith estimate of the value of any such goods or services.

The taxpayer argued that it was futile to write herself an acknowledgement and that the bank statements were sufficient to substantiate her contributions. The Court disagreed, finding that the bank statements do not qualify under Code Section 170(f)(8)(A) because they do not state whether the taxpayer received any goods or services in exchange for her contributions. Moreover, it was "immaterial that [the taxpayer] was on both sides of the transaction," because, while a written acknowledgement may not have been needed by the taxpayer to determine the amount of her deduction, "the IRS still needed it to assist in determining whether [the taxpayer] was entitled" to her claimed deductions.

Quarles & Brady Comment

The Villareale decision highlights that substance will not prevail over form when substantiating charitable contributions. Those who make contributions to any charitable organizations, including private foundations they have created or they administer, would do well to heed the Court's tough lesson to Ms. Villareale and comply fully with the written acknowledgement requirements of Code Section 170.

This update is intended as a general summary of legal matters and not as specific advice to any particular client. If you have any questions concerning the subject matter of this update, please contact Janice E. Rodgers at (312) 715-5034 / janice.rodgers@quarles.com, Jodi P. Pellettiere at (312) 715-5063 / jodi.pellettiere@quarles.com or your Quarles & Brady attorney.