David and Veronda Durden only wanted to make a gift to their church. Now, because of a clerical error at the church, the couple is facing fines and other penalties for claiming a tax deduction they weren’t entitled to take.
The Durdens gave $22,517 to their church through cash and checks. No one disputes that they made the gift. The church sent them a receipt . They kept the cancelled check. So what’s the problem?
The problem is that the receipt from the church did not say one of the two following phrases:
“No goods or services were provided in exchange for your contributions,”
“No goods or services were provided in exchange for your contributions other than intangible religious benefits.”
This rule came into being about 20 years ago, as the IRS started to crack down on people making a donation, getting theater tickets or other benefits as a result, then claiming the full amount of the check as a donation. It is required for any donation of $250 or more.
The IRS isn’t even saying that the Durdens got any benefit. The entire case is based on the church not having that phrase on their gift acknowledgement.
When the Durdens found out they were in trouble with the IRS, the church attempted to issue a second acknowledgement with the correct language. But this was not allowed, as the receipt must be issued before the earlier of a) when the couple files their taxes or b) when the deadline to file passes.
I’m guessing the Durdens are more than a little upset with their church over this. This will cost them $5,000 to $10,000 in additional taxes, plus interest and penalties. And I don’t even want to guess what their legal bills have been.
Please make sure you are complying with this regulation, and do it before one of your members is in the same pickle as the Durdens. It is also important that when people write checks and do get a benefit, such as VBS registration or buying bake sale items from the youth group, that this be indicated as well.
While the U.S. is all about separating church and state, when the two come together we need to make sure that we are in compliance. Failing to do so can be expensive.