Monday, April 26, 2010
A recent summary opinion of the United States Tax Court, Wilkes v. Comm’r, T.C. Summ. Op. 2010-53, reminds taxpayers and their advisors of the importance of donating directly to a charitable entity qualifying under section 170(c) of the Internal Revenue Code before claiming a charitable contributions deduction. In Wilkes, the taxpayers made two kinds of gifts. One type consisted of transfers directly to needy individuals identified by church leaders as deserving of support. The other type consisted of gifts to several missionaries planting churches elsewhere in the United States and in South Africa. Deductions for gifts to the needy individuals and to the church planter in South Africa were denied because they were not made to a qualified charitable donee (i.e., an entity organized in the United States and operated for educational, religious, or other qualifying exempt purposes). Deductions were upheld for gifts to the domestic church planters, for they were acting as agents of local churches when the individuals solicited and expended donated funds. This decision, released on April 22 and reported by Tax Notes Today, is available at 2010 TNT 78-16.
Caveat: Taxpayers also generally cannot claim a charitable contributions deduction when they make their checks payable to charitable donees and then require that their donations be used to benefit individuals designated by the taxpayers. For a complete discussion and analysis of these and similar cases of “earmarking” purportedly charitable gifts for individuals, see Johnny Rex Buckles, The Case for the Taxpaying Good Samaritan: Deducting Earmarked Transfers to Charity under Federal Income Tax Law, Theory & Policy, 70 Fordham L. Rev. 1243 (2002), available on SSRN.