Wednesday, February 27, 2013
Ellen P. Aprill (Loyola-L.A.), Reforming the Charitable Contribution Substantiation Rules, 14 Fla. Tax Rev. ___ (2013):
In May 2012, the Tax Court issued two decisions denying income tax deductions for gifts to charitable organizations because they failed to meet the requirements for a qualified appraisal [Mohamed Sr. v. Commissioner, T.C. Memo. 2012-152; Durden v. Commissioner, T.C. Memo. 2012-140]. These cases lit a firestorm of outrage in various circles, raising questions of how strictly substation rules should be applied. This article begins by reviewing two reasons why the charitable contribution substantiation rules applicable to the income tax merit consideration. First, the charitable contribution deduction is important for both its size and its distribution, and the substantiation rules work to safeguard its integrity. Second, in the case of the charitable contribution, unlike many other income tax provisions, the Treasury and the IRS cannot look to third parties with self-interested incentives that help ensure compliance. The substantiation rules substitute for third party corroboration. Part II of the paper sets out, as briefly as possible, the complicated regime regarding the substantiation of charitable contributions, including the legislative history and applicable regulations. Part III examines applicable case law. Review of legislation, regulations, and case law suggests strongly that we make an effort to reform the current scheme, and Part IV presents a number of possible reforms. These suggestions include inflation adjustments, regulatory changes, and making greater use of technology, with the government working with providers of computer software and those involved in texting of charitable donation. Finding approaches that appropriately balance the need to control overvaluation with the need to encourage legitimate charitable contributions is a difficult but important challenge.