Charitable Deduction "Red Flags": What You Need to Know During an IRS Audit

Several “red flags” can trigger IRS scrutiny of taxpayers’ charitable deductions. These include disproportionate donation-to-income ratios and unsubstantiated donation claims. When facing scrutiny over charitable deductions, taxpayers must be prepared to affirmatively demonstrate compliance to avoid additional liability. Learn more from Virginia tax evasion attorney Kevin E. Thorn.

The Internal Revenue Service (IRS) frequently scrutinizes high-income taxpayers’ charitable deductions when auditing their federal returns. In doing so, it looks for several “red flags.” While these “red flags” are not inherently indicative of noncompliance, the IRS has identified them as common indicators of fraud. As Virginia tax evasion attorney Kevin E. Thorn, Managing Partner of Thorn Law Group, explains, this means that taxpayers must be prepared to address these issues proactively during the audit process.

What Are the IRS’ “Red Flags” for Improper Charitable Deductions?

What are the IRS’ “red flags” for improper charitable deductions? According to the IRS, all of the following are potential signs that taxpayers have improperly claimed charitable deductions on their federal returns:

• Unusually high donation-to-income ratios
• Exceeding the adjusted gross income (AGI) limits for charitable deductions
• Claiming in-kind donations without supporting documentation (i.e., IRS Form 8283 or an independent appraisal)
• Claiming financial donations that lack written acknowledgments from their charitable recipients
• Claiming deductions for payments made to individuals or unregistered entities

These issues can trigger IRS audits and lead to enhanced scrutiny during the audit process. If the IRS determines that a taxpayer improperly claimed charitable deductions, this can lead to liability for back taxes and interest, plus civil or criminal penalties depending on the specific allegations.

What Should Taxpayers Do When Facing IRS Scrutiny Related to Their Charitable Deductions?

With this in mind, taxpayers facing IRS scrutiny over their charitable deductions should take a proactive approach to defending themselves. This includes promptly gathering all relevant documentation and consulting an experienced attorney who can provide an accurate, unbiased assessment of their federal income tax liability. Depending on the outcome of this assessment, favorably resolving an audit may involve either:

• Using the taxpayer’s documentation to affirmatively demonstrate compliance with the Internal Revenue Code; or
• Negotiating a resolution with the IRS that avoids unnecessary liability while demonstrating a good-faith commitment to compliance going forward.

How Thorn Law Group Can Help

Our practice is devoted to representing individual and corporate taxpayers in federal tax controversies. If the IRS is scrutinizing your charitable deductions, we can help you make informed decisions about your next steps and communicate with the IRS on your behalf. We can also work to negotiate a favorable resolution on your behalf if warranted, and we can challenge the outcome of your IRS audit if necessary.

Discuss Your IRS Audit with Virginia Tax Evasion Attorney Kevin E. Thorn

To discuss your IRS audit with Virginia tax evasion attorney Kevin E. Thorn, Managing Partner of Thorn Law Group, contact us today. Call 703-752-3752 or contact us online to schedule a confidential consultation as soon as possible.