Expanded Information Reporting For Charitable Giving

C. Eugene Steuerle

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© TAX ANALYSTS. Reprinted with permission.

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Much attention has been given in recent years to the IRS’s inability to administer well many aspects of the tax laws. Less recognized, however, has been an area of significant improvement: Asystem of expanded information reporting has enhanced the IRS’s ability to handle many types of transactions fairly and efficiently. I suggest that now is the time to learn from this past history and apply an enhanced reporting system to a broader range of transactions — especially where the potential error or cheating rate is quite high (see ‘‘Improved Information Reporting for Capital Gains,’’ Tax Notes, Aug. 8, 2005, p. 697). One item that should be high on the list for improved reporting is the charitable deduction. Let’s start with the essential facts. The IRS simply cannot and does not check up on almost all deductions reported on tax returns. It audits only a tiny fraction of people. Yet tens of millions of households declare charitable deductions of both cash and in-kind contributions. The potential for misreporting and cheating inevitably is quite large. Important steps toward improvement in this reporting system were made when charities were required to send to the IRS a form (8282) for donated property disposed of within two years of the donation and to taxpayers an acknowledgment for each single contribution reporting of $250 or more with a description of the donated property and the name and address of the charitable donee. Taxpayers, in turn, must file a form (8283) with the IRS on their in-kind contributions of $500 or more. Some of the building blocks of a system of information reporting therefore are already in place. This system needs to be advanced to the next stage, with an eventual goal that the Service can generate computer matches for most of the charitable contribution deductions taken by taxpayers, just as it matches interest and dividend statements today.

Note: This report is available in its entirety in the Portable Document Format (PDF).

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