IRS Ferrets Out Improper Charitable Deduction in Animal Rescuer’s Return

Person Searching File Cabinet An animal rescue charity president lost out on nearly $10,000 in charitable donations deductions she made to her charity because she failed to keep the proper records regarding the donations. In Villareale v. Commissioner, the U.S. Tax Court ruled that, because the taxpayer lacked documents showing that no goods or services changed hands in exchange for the donations, she could not claim any of her donations that were greater than $250.

Jolene Villareale was the president of a non-profit ferret rescue organization, and handled all of its finances. In 2006, the taxpayer claimed a $12,386 charitable giving deduction on her 2006 taxes, and the IRS denied $9,993 of the woman’s deduction. The IRS declared a deficiency. It did not dispute that Villareale made the contributions, or that the ferret rescue was a permissible charitable organization. Rather, it contended that the $9,993 it rejected was the sum of a series of donations for which the taxpayer lacked the appropriate supporting documentation.

The Tax Court sided against the taxpayer. The court noted that, for individual charitable donations of $250 or more, the taxpayer must obtain and receive a “contemporaneous written acknowledgment of the donation” from the charity. In Villareale’s case, she did not have the proper acknowledgements. The taxpayer argued unsuccessfully that her bank statements, alongside the charity’s bank statements, were sufficient to substantiate and document the donations. The court explained that bank statements were inadequate because “they do not state whether petitioner received any goods or services in exchange for” the donation.

The court was also unmoved by the taxpayer’s contention that, because she was the individual on both ends of the donation transaction, “it would have been futile” to create a document showing that she received no goods or services for her donation. Even though the taxpayer may not have needed the acknowledgement in determining the amount of her donations, the IRS was still entitled to demand such documentation in order to determine the amount of deduction to which Villareale was properly entitled.

The court also rebuffed the taxpayer’s substantial compliance argument, concluding it was inapplicable to her case. The “specific statement regarding whether goods or services were provided in consideration for the contributions … is necessary,” the court concluded. The taxpayer did not have that statement; therefore, the IRS was allowed to reject the deduction. The “take away” from this is clear: always make sure you have documentation supporting your large charitable donations, and that your paperwork contains all the necessary language required by Section 170(f)(8) of the tax code, even if that means writing a receipt or letter to yourself.

The key to defending many income tax deductions is having, and keeping, the proper documents to support those deductions, as this taxpayer discovered the hard way. To ensure you have the correct papers for your tax deductions, consult the diligent tax attorneys at Samuel C. Berger, P.C. and CPAs at S.C. Berger, P.C., who have been helping people throughout New York and northern New Jersey for years in dealing with all types of income tax issues. To consult our attorneys and CPAs, contact us online or call (201) 587-1500 or (212) 380-8117.

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