Grassley Urges Tougher Oversight Of Charitable Contributions

by Leroy Baker, Tax-News.com, New York

20 March 2007

Sen. Chuck Grassley, ranking member of the Committee on Finance, has expressed concern over the findings of a new government report showing that compliance problems involving noncash charitable contributions persist.

The report by the Treasury Inspector General for Tax Administration (TIGTA) found that in a recent nine-month time period, 101,000 taxpayers could have claimed $1.8 billion in unsubstantiated noncash contributions.

"That’s amazing," Grassley remarked. "Equally as bad is that 20% of taxpayers or their preparers failed to comply with reporting requirements for non-cash contributions."

"Honest taxpayers shouldn’t have to shoulder the burden of those who want to play fast and loose with the tax laws meant to encourage charitable giving," he added. "I hope the IRS will follow the report’s recommendations and make clear to taxpayers what’s acceptable. Also, the IRS and Treasury need to make a priority of issuing guidance on non-cash donations, based on anti-abuse legislation that I proposed and that Congress enacted last year."

In recent years, the legitimacy of the values placed on some noncash donations, such as clothing, has been questioned by the IRS and Congress. As a result, Congress passed legislation that created additional reporting requirements to substantiate the value of some of these donations.

Individual taxpayers are required to file a Noncash Charitable Contributions form if their charitable deductions claimed for noncash contributions exceed $500. The amount of substantiation to be provided increases as the value of the deduction increases. However, the report found that currently, taxpayers who may not be entitled to deductions for noncash contributions are reducing their tax liabilities and may receive refunds regardless of whether they provide the required substantiation.

This audit was conducted as part of TIGTA’s coverage of the implementation of Tax Bill Legislation. Provision 883 (Increased Reporting for Noncash Charitable Contributions) of the American Jobs Creation Act of 2004 created additional reporting requirements for individual taxpayers making noncash charitable contributions. The objective of the review was to evaluate the implementation of Provision 883 and the processing of individual income tax returns reporting deductions for noncash contributions.

TIGTA concluded that taxpayers and tax practitioners still need to be better educated concerning requirements for claiming charitable contributions. It also recommended that additional procedures need to be established to identify noncompliance with charitable contribution requirements during returns processing.

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