At least one tax expert is advising certain taxpayers to wait until next year to claim a deduction for their charitable contributions for Haiti earthquake relief.
Congress recently passed legislation allowing the deductions to be claimed this tax season (see Senate Unanimously Approves Bill to Speed Haiti Tax Deductions). However, CCH principal federal tax analyst Mark Luscombe acknowledged that while deducting eligible contributions on 2009 returns offers a quicker tax benefit, deducting the contributions on a 2010 return may offer a larger benefit, at least for the well-heeled.
For 2009, high-income taxpayers can lose some of the value of their itemized deductions, he warned in a press release from CCH. For 2010, that potential limitation doesn't apply, although it may be reinstated for 2011 and future tax years.
He believes the new law, and the IRS guidance, may also set a new precedent for the kind of substantiation that the IRS will accept in the future for charitable contributions (see IRS Spells Out Haiti Tax Deduction Rules). Since 2006, every deduction for a cash contribution (which includes contributions made by check and credit card) of any amount has had to be substantiated by a bank record such as a cancelled check or by something in writing, such as a receipt or letter from the donee indicating the name of the donee organization, the date the contribution was made and the amount of the contribution, he noted.
Instead, individuals who make a cash contribution for Haiti earthquake relief through their cellular telephones via text message can substantiate it with their telephone bill, rather than a document from the charity. The telephone bill must show the name of the charitable organization, the date of the contribution and the amount of the contribution.
The exception indicates that Congress may have made the law for some cash contributions too restrictive, with the language of the statute denying a deduction for contributions that are clearly legitimate and verifiable. The IRS has already said that it will accept payroll records and pledge cards as substantiation for charitable donations made through payroll deductions, even though these don't meet the exact requirements of the new law.
Perhaps the exception made for Haiti earthquake relief will be expanded to other situations in which there is a third-party record that a donation has taken place, even though the record comes from a store, not the charitable organization, such as donations to literacy programs or food pantries made by adding a few dollars to your bill at the bookstore or grocery, Luscombe said in a statement. This may come through an IRS ruling or from clarifying legislation, but I think it will come one way or another.