Deadline Nears for 2009 Deductions of Earthquake Donations

April 6, 2010

Contributions to victims of the recent earthquakes in Chile or Haiti must be made by April 15, 2010, in order to claim those contributions as charitable deductions on 2009 income tax returns. This accelerated deduction was approved on March 10, 2010, when the House of Representatives passed H.R. 4783, allowing taxpayers to take a charitable deduction on their 2009 income tax returns for contributions to aid victims of the Feb. 27, 2010, earthquake in Chile. The accelerated deduction is available for contributions made through April 15, 2010.

Taxpayers can claim cash, credit card and cell phone donations as charitable contributions under the bill, as long as the charities are qualified under Code section 170. A cell phone bill showing the contribution date, the donee organization, and the contribution amount, meet the recordkeeping requirements of Code section 170(f)(17). The Senate has not yet scheduled action on the House bill.

H.R. 4783 also extends the donation deadline through April 15, 2010, for contributions to Haiti’s disaster relief efforts. In the days immediately following the Jan. 12, 2010, earthquake that struck Haiti, Congress passed P.L. 111-126 in a bipartisan effort to allow certain charitable donations to the Haitian relief effort made in 2010 to be deducted as if they were made in 2009. That bill allows cash contributions, including those made by text message, made to charities providing earthquake relief in Haiti after Jan. 11, 2010, and before March 1, 2010, to be deducted on a U.S. taxpayer’s 2009 or 2010 return.

IRS Warns of Abuse of Charitable Organizations & Deductions

Contributions to domestic tax-exempt, charitable organizations that provide relief assistance to individuals in foreign countries qualify as tax deductible contributions for federal income tax purposes provided that the U.S. domestic organization has control and discretion over the use of the funds. However, the IRS has cautioned about certain unscrupulous actions of donors and charities misusing tax-exempt status.

On its 2010 list of “Dirty Dozen Tax Scams,” the IRS warned taxpayers against misuse of tax-exempt organizations and charitable deductions. The IRS regularly looks for abuse in arrangements with charities that impermissibly hide income or assets from taxation or that allow donors to control donated assets or the income from donated property. One common scheme involves a non-cash asset being donated with multiple charities claiming the entire value of the receipt and distribution of the same contribution.

Donations can be grossly overvalued or a donee organization may grant the donor an option to repurchase the item at a value set by the donor. The Pension Protection Act of 2006 included enhanced definitions of qualified appraisal and qualified appraiser for charitable contributions. It also imposed stricter penalties for faulty appraisals.

McGuireWoods Nonprofit & Tax-Exempt Organizations Group

Our Nonprofit and Tax-Exempt Organizations lawyers provide advice and guidance that enable charities and other nonprofits to operate more efficiently and effectively in today’s increasingly complicated, regulated and competitive environment they face.

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