TIGTA: Over $1 Billion in Tax Losses Due to Improper Noncash Gifts Deductions

By Bruce R. Hopkins, EditorJanuary 17, 2013 | Print

The Treasury Inspector General for Tax Administration (TIGTA) has once again concluded that some donors are not complying with the noncash contributions reporting requirements, thus claiming unwarranted charitable deductions, and that IRS controls are insufficient to ensure taxpayer compliance with these requirements (report no. 2013-40-009, dated December 20 and made public on January 15).

TIGTA reported that, in 2011 and 2012, approximately 21 million and 20 million individuals claimed deductions for noncash charitable contributions, respectively. Treasury, however, was unable to compute the amount of noncash charitable contributions claimed, due to errors in IRS data. TIGTA found that the noncash contribution amounts in the IRS’s records “are not always accurate” and that the “dollar amounts of some of the errors are substantial.” For example, TIGTA estimated the amount of noncash contributions recorded for six tax accounts was overstated by approximately $88 billion.

TIGTA estimates that more than 273,000 taxpayers claimed approximately $3.8 billion in potentially erroneous noncash charitable contribution deductions in 2010, which resulted in an estimated $1.1 billion reduction in tax. Its statistical sampling of tax returns for 2010, containing claims for more than $5,000 in noncash charitable contributions, showed that about 60 percent of the taxpayers did not comply with the reporting requirements; this entailed approximately $201.6 million in claimed deductions. This noncompliance involved missing Forms 8283 or 1098-C, or appraisals. Overall, TIGTA wrote, the “IRS’s actions have not been effective at identifying the majority of unsubstantiated noncash charitable contributions by taxpayers during returns processing,” so that the IRS “may be allowing these individuals to inappropriately reduce their tax liabilities and subsequently receive tax refunds to which they are not entitled.”

Here is what the IRS has agreed to do:

  • Expand its processes to ensure that it identifies tax returns claiming noncash charitable contributions that do not have a Form 8283 and/or a qualified appraisal attached.
  • Revise the Form 8283 to include the contribution date for gifts of noncash property with a value of greater than $5,000.
  • Revise the Form 8283 and its instructions to clarify the rules concerning the grouping of similar items and to require reporting of the number of shares in cases of gifts of securities.
  • Continue to monitor the TE/GE outreach program concerning donor organizations’ filing requirements to determine whether program “enhancements” are needed. [4.2, 4.3, 21.4]

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