• Tax Case Shows It’s Better To Give Than To Receive Notification of an IRS Audit

    By | January 9, 2013

    The Bible says God loves a cheerful giver, and the U.S. Tax Code says a cheerful giver loves the charitable contribution deduction. But according to the outcome of the recent case Durden v. Commissioner, the Tax Court hates both God and cheerful givers.

    According to an article in The Tax Adviser, here's what happened.
    In 2007, the Durdens claimed a charitable contribution deduction of $22,517 for cash contributions to their church. Most individual contributions exceeded $2501.
    First off, the Durdens are sinners because the Bible says, "When you give […] do not let your left hand know what your right hand is doing, so that your giving may be in secret." It's hard to maintain that your left hand doesn't know what your right hand is doing when the Department of the Treasury knows what your right hand is doing2.
    Regardless, $22,517 is a lot of shekels, so the IRS called BS under the assumption that no one believes in God to that extent during a recession.
    Upon questioning by the IRS, the Durdens produced a letter from their church acknowledging the contributions, as well as canceled checks supporting the amounts of the claimed deduction.
    Suck it, IRS, and pony up some of that filthy lucre! Wait. What?
    The IRS declined to accept the [church's] acknowledgment [of the contributions] on the grounds that it did not contain the required statement under Sec. 170.
    What required statement under Sec. 170?
    For donations of $250 or more […] the donor must obtain a contemporaneous written acknowledgment […], stating the amount of the contribution [and] whether the donee provided goods or services in consideration for the donation […]. If goods or services received consist solely of intangible religious benefits, the contemporaneous documentation must contain a statement to that effect.
    So the church secretary didn't write "goods and services provided in consideration for these donations consisted solely of intangible religious benefits" on the Durdens' annual giving statement. Fortunately, the Durdens didn't have oil miraculously appear in empty jars that they borrowed from their neighbors because that would probably be considered a tangible religious benefit.
    So what did the Durdens do?
    The Durdens subsequently obtained a second written acknowledgment from their church with the required language.
    Problem solved. Right? Nope.
    The IRS [and the Tax Court] disregarded it because it did not meet the contemporaneous written acknowledgment requirement of Sec. 170(f)(8)(C), which defines contemporaneous as [something different than what they got]3.
    So the Durdens had to pay about $7,500 in additional taxes because they were unlucky enough to get singled out for an audit, and their church treasurer failed to conform with the minutiae of the tax code. Either that or God hates them.
    And always remember, when giving a large cash donation to your church, write a series of checks with different dates and with the amount of each check not exceeding $249. That's a better loophole than buying indulgences or premarital butt sex.
    1This is important later on.
    2They're also sinners because Mr. Durden covets his neighbor's ox.
    3In this case "contemporaneous" means the earlier of the date of filing or the extended due date, including extensions, of the return4.
    4You're welcome, nerds.
    • CPA Dude

      I would guess the Durden’s will burn in hell. First they disobeyed the IRS. Second they did it by giving to a church that obviously isn’t much of a church. Third they had the audacity to deduct a gift to the Church. How dare they?
      I am so glad the IRS is going after individual tax payers as opposed to businesses (in this case, the business of God). The Durdens did nothing wrong. The church is in error. I only hope through an act of God, the Church “Gives” the Durdens a check for about $7,500 to pay for their tax bill due to a mistake the church made.
      Or do the Durdens risk eternal damnation in hell by switching churches?

      • Guest4Ever

        Don’t forget the gross up.

    • SouthernCPA

      I remember thinking when this case came out a couple of months ago, “Gee, so much for the kinder, gentler IRS”.

      It’s things like this that make you really wonder if the government is for the people.

      • $19577774

        I’m not sure I’m following you. In this case, the government is trying to increase its revenues. Is that not for the people?

        If you were to point to some random person on the street and tell me that they gave $22,517 to their church last year, my first thought would be “bullshit”.* I applaud the IRS for their professional skepticism in this matter.

        * I remain skeptical that Mitt Romney gave 10% of his income to the Mormon church. But I guess no one cares about that anymore. I miss the 2012 election.

        • SouthernCPA

          Government increasing it’s revenues being for the people I guess is logical if you believe bigger government = better government. I’m sure the client at hand certainly doesn’t feel like the government is helping him out today.

          The government won on a technicality. And I understand that technicalities are quirte important.

          I would agree with you that if I asked some random person on the street, that amount would be bullshit, because the odds are a random person on the street could not afford that. But that doesn’t mean everyone can’t afford that.

          Professional skepticism? The letter didn’t have a particular paragraph written on it. It wasn’t like the IRS didn’t believe the deduction was legitimate. They just denied it because the letter was not proper. That’s not professional skepticism… that’s an examiner getting lucky.

          As to Mitt’s 10 percent… who knows… but I had a client this fall that was in serious financial trouble, couldn’t pay their tax bill, business was failing, collectors were calling, etc… and they still gave 10 percent to their church. I could not believe it.

    • Guest

      Can we please just go to a flat tax and get rid of this kind of stupidity?

      • $19577774

        Be careful what you wish for. A flat tax would not benefit the accounting profession.

      • rlj

        Eliminating all deductions =/= flat tax. Flat tax = everyone in one tax bracket.

      • Robert Palmer

        The hell does flat tax have to do with charitable deductions?

    • Simplicity is best

      I think this post kind of misses the entire point of the case. IRS has made it EASIER on nonprofits, not HARDER. Confirming a charitable contribution is binary, simply either-or, no “gray.” Either it met the few requirements (a certain statement made within a certain number of days) or it did not. Eliminating any gray just makes life easier. Expecting constant wiggle room is what regular people find annoying. Just live with an either-or world and stop complaining.

    • $19577774

      Why is it that churches are tax-exempt, but every other for profit business has to pay income taxes? Seems to me this might be a way to help reduce the deficit and create more fairness in our tax system.