Taxpayers Reported Billions in Potentially Erroneous Noncash Charitable Contributions

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Approximately 60 percent of taxpayers who claim large-dollar noncash charitable contributions on their returns may not be complying with federal reporting requirements, according to a new report, with potentially erroneous contributions estimated at $3.8 billion in 2010.

The report, from the Treasury Inspector General for Tax Administration, found that the Internal Revenue Service is not ensuring that taxpayers are complying with reporting requirements for claiming noncash charitable contributions. An estimated 273,000 taxpayers claimed approximately $3.8 billion in potentially erroneous noncash charitable contributions in tax year 2010, which resulted in an estimated $1.1 billion reduction in tax.

“Taxpayers can generally deduct noncash charitable contributions made to qualifying organizations during the tax year on their Federal tax returns,” said TIGTA Inspector General J. Russell George in a statement. “However, taxpayers who do not comply with the reporting requirements for noncash contributions could be incorrectly reducing their tax liabilities and receiving tax refunds to which they are not entitled,” he added.

Taxpayers who donate motor vehicles must attach a Form 1098-C, Contributions of Motor Vehicles, Boats, and Airplanes, to their tax returns. However, the IRS is still not effectively identifying taxpayers who are not complying with reporting requirements for donations of motor vehicles.

TIGTA made six recommendations for improvement to the IRS. IRS management agreed with three of the six recommendations, and partially agreed with one.

“We agree with a number of recommendations in the report and continue to make improvements in this area,” wrote Peggy Bogadis, commissioner of the IRS’s Wage and Investment Division. “For example, we agree with your recommendation to clarify reporting instructions provided to taxpayers who are required to complete and submit Form 883, Noncash Charitable Contributions. Additionally, we also agree to expand our procedures used to process tax returns claiming noncash contributions to ensure that we initiate correspondence to obtain missing Forms 8283 and/or qualified appraisals before the applicable charitable contribution is allowed.”

However, Bogadis pointed out that that TIGTA’s analysis of tax return data for 507 accounts identified only 55 returns, or 11 percent, with missing documentation. She noted that Math Error Authority is limited by the Tax Code, so the majority of cases that were identified do not fall under the IRS’S Math Error Authority and need to be addressed through deficiency procedures.

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