Tax Consequences Associated with Quid Pro Quo 'Charitable' Contributions

Posted: 8 Mar 2004

Abstract

Over the last decade, Congress has instituted several measures designed to curb taxpayer abuse when it comes to quid pro quo arrangements between taxpayers and charities. In the absence of these measures, Congress feared that taxpayers would aggressively take charitable deductions when the true benefit that inured to charity was far less than that reflected by taxpayers on their tax returns. Thus, among other prophylactic measures it has instituted in the charitable area, Congress implemented the following two safeguards. First, taxpayers are not allowed to deduct charitable contributions of $250 or more unless they can substantiate the contribution by receipt of a contemporaneous written acknowledgement from the donee organization. Second, a charitable organization that receives a payment in excess of $75 must provide a written statement to the donor in connection with the solicitation or receipt of the contribution informing the donor that the deduction is limited to the difference between (i) the money and the value of other property contributed and (ii) the value of the goods or services provided. The charity must also supply the donor with a good faith estimate of the value of goods or services furnished by the organization.

Notwithstanding the institution of these safeguards, the IRS has not prevented taxpayers from wrongfully continuing to take deductions. Sometimes taxpayers take charitable deductions relating to quid pro quo arrangements unwittingly, sometimes not. This paper explores the implications to taxpayers, tax professionals, and charitable organizations when such deductions are mistakenly or intentionally taken; and it proposes another measure to prevent such deductions.

Suggested Citation

Soled, Jay, Tax Consequences Associated with Quid Pro Quo 'Charitable' Contributions. Available at SSRN: https://ssrn.com/abstract=515104

Jay Soled (Contact Author)

Rutgers University ( email )

1 Washington Park
Newark, NJ 07901-1825
United States
(973) 353-1727 (Phone)

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