At the North Carolina Community Foundation, we’re committed to sharing updates on legal and policy developments that may impact your clients.

In two recent rulings, the underlying message is consistent: Courts and the IRS continue to apply the technical requirements governing charitable deductions with precision.

Strict substantiation: A familiar but important reminder

Gibson v. Commissioner serves as a reminder that it is important for your clients to substantiate their charitable deductions. Both the IRS and the Tax Court disallowed a taxpayer’s deduction because rules were not followed. In Gibson, a married couple claimed nearly $194,000 in non-cash charitable contributions related to donated personal property. The court did not dispute that tangible items were transferred to a charitable organization. Instead, the deduction failed because the taxpayers did not satisfy the detailed substantiation requirements—specifically, contemporaneous written acknowledgments and qualified appraisal standards.

No matter how strong a client’s desire to make a difference through charitable donations, technical compliance drives deductibility. Form 8283 thresholds, appraisal rules, and acknowledgment language are not administrative formalities; they are statutory requirements.

Exempt status is not forever

In Milk Saving Starving Children Foundation v. Commissioner the Tax Court upheld the IRS’s revocation of 501(c)(3) status for an organization that failed to operate exclusively for charitable purposes and conferred impermissible private benefits. The organization’s stated mission—to distribute milk—was in fact charitable. Over time, though, its operations drifted away from distributing milk to operating a coffee shop and hosting a golf tournament.

The Tax Court’s written opinion in Milk provides an overview of the legal principles behind one of the cornerstones of tax-exempt status: a charity’s ongoing activities must further its exempt purposes.

Remember the Milk case when a client expresses interest in contributing to a 501(c)(3) with which you are unfamiliar. The team at NCCF is here to support you! We can provide insight on any charitable organization.

Thank you for the opportunity to work together to serve your charitable clients. Our goal, as always, is to serve as a practical resource, helping you ensure that your clients’ charitable intentions are fulfilled with clarity, compliance and confidence.

This article is provided for informational purposes only. It is not intended as legal, accounting, or financial planning advice.