Paul L. Caron

Wednesday, January 16, 2013

TIGTA: IRS Has 60% Error Rate in Policing Noncash Charitable Contribution Deduction

TIGTA The Treasury Inspector General for Tax Administration yesterday released Many Taxpayers Are Still Not Complying With Noncash Charitable Contribution Reporting Requirement (2013-40-009):

TIGTA estimates more than 273,000 taxpayers claimed approximately $3.8 billion in potentially erroneous noncash charitable contributions in Tax Year 2010, which resulted in an estimated $1.1 billion reduction in tax. ... IRS controls are not sufficient to ensure taxpayers are complying with noncash charitable contribution reporting requirements. Statistical samples of Tax Year 2010 tax returns that claimed more than $5,000 in noncash charitable contributions showed that approximately 60 percent of the taxpayers did not comply with the noncash charitable contribution reporting requirements. These taxpayers claimed noncash contributions totaling approximately $201.6 million. Taxpayers who donate motor vehicles must attach a Form 1098-C, Contributions of Motor Vehicles, Boats, and Airplanes, to their tax returns. However, the IRS is still not effectively identifying taxpayers who are not complying with reporting requirements for donations of motor vehicles.

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That might be because the record keeping for charitable deductions has become beyond the ridiculous. It is onerous and uncalled for. The IRS has tried to make it as difficult as possible to take a charitable deduction. For example, a couple who recently had cancelled checks to prove their donations to their church had their deduction taken by the IRS because the letter from the church failed to meet the IRS requirements. Ridiculous.

Posted by: Mark | Jan 18, 2013 1:07:37 PM

I thought this was going to be about the IRS abusing taxpayers who take deductions. Taxpayers taking generous amounts I'm not so worried about. We need to starve the beast. Didn't Bill Clinton claim thousands of dollars deduction for his underwear when he was governor? Why shouldn't we?

Posted by: MarkInFlorida | Jan 17, 2013 9:12:44 AM

I agree, Marcopholo. Not a lot of money is at stake. Two things tho---1. The IRS is going to be doing random audits anyway, and I bet donations-in-kind-with-irregularities would help find productive audits (a question that the IRS "big data" analysis could answer) and 2. computer-generated IRS checks are extremely cheap.

Puddin: the computer-generated letter is a way to get the taxpayer to supply the labor effort instead of hte IRS. The taxpayer should nag the charity. Then, if the charity is in hte wrong because it should have submitted the form, the charity should be fined. A last step, which I would do but the IRS won't, is that the fine should then be used to reward the taxpayer.

Posted by: Eric Rasmusen | Jan 17, 2013 8:23:46 AM

how about the deductions not taken because no receipts are given. I bet that MORE than offsetts the deductions taken without receipts. Examples....everytime a girl scout comes to your front door, everytime you pass a salvation army kettle, school fundraisers, that occasional 5 or $10 cash contribution you put in a donation drive, groceries you bought for "combat hunger", the cash contributions you put in the offering plate, but didn't put it in an envelope.

I could care less about the IRS not policing charitable donations. They're coming out ahead anyways.

Posted by: Ryan | Jan 17, 2013 8:23:18 AM

The charity hands you a receipt for your donation. I have receipts for all my donations but I have no idea if they keep detailed records. Not my responsibility.

Posted by: Puddin | Jan 17, 2013 5:06:05 AM

This number _sounds_ big to ordinary mortals, but "an estimated $1.1 billion reduction in tax" might be chump change in terms of the cost of policing and enforcement. Maybe it's better to allocate the IRS's scarce resources elsewhere? (Cost > Projected Additional Revenue?)

Posted by: Marcopohlo | Jan 17, 2013 4:56:59 AM

This sounds atrocious. The IRS computer should automatically deny auto charitable deductions if the charity submits no record of the donation having been made. The taxpayer should then have the burden of showing that the donation was actually made. What reason could there be for not doing it that way?

Posted by: Eric Rasmusen | Jan 16, 2013 11:21:25 AM