The Ugly Truth: Charitable Deductions Denied For Someone Else’s Mistake

  • If you were audited by the IRS, do you think they would be fair to you? Many people believe that if they have receipts and can prove their deductions, the IRS will accept it. That may have been true years ago, but today’s IRS is ruthless. This court case is proof of that.

    The Story

    David and Veronda Durden gave money to their church on a consistent basis. Over the course of a year, their contribution totaled about $25,000. During an audit of their tax return, the IRS denied the contributions, even though the church and the IRS both acknowledged that the money was indeed given to the church.

    The Durdens took their case to Tax Court. Surely, the Tax Court wouldn’t be as heartless as the IRS. The Durdens had proof of the donations, since all of the donations were paid by check. The court agreed that the Durdens did, in fact, make the contributions. The shocking part is that the Tax Court agreed with the IRS and denied the contributions because of a technicality. It seems that the church failed to include the proper wording on their acknowledgement summary.

    Perhaps this case would make sense, if it had been the Durdens who made the mistake, or couldn’t prove their deduction. But, it was the church that made the mistake, by failing to include the following statement: “no goods or services were provided in exchange for the donation—only intangible religious benefits.”

    The Durdens argued that they complied to the best of their knowledge, and that all parties agreed that the donations were, in fact, given. The IRS and the Tax Court didn’t care.  According to the IRS, they will deny every donation of $250 or more that does not have that explicit verbiage.

    This case demonstrates that it is not just our mistakes that we must worry about, but that the IRS will ding us for the mistakes of others too. When the IRS calls you in for an audit, don’t expect them to be reasonable.

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