Unless your situation is similar to that of Tom Hanks from the movie Cast Away and you’ve been stranded on a deserted island the past few weeks, it would seem practically impossible not to be aware of the ALS Ice Bucket Challenge. It seems we’ve been bombarded by the phenomenon of the ALS (Amyotrophic Lateral Sclerosis, also known as Lou Gehrig’s disease) challenge through news and social media outlets of individuals posting videos accepting this challenge. The premise of the challenge is simple; dump a bucket of ice water over your head or donate $100 to ALS, then challenge other friends or family to do the same.
Most of us within the CPA profession understand the basic rules for deducting charitable contributions for tax purposes. However, based upon the extraordinary awareness of this campaign, maybe this should also be a reminder for us to communicate and advise our clients of the proper documentation and record-keeping for these tax deduction purposes.
Then my next thought was considering if there were any circumstances in which the IRS might not allow such “contributions” to be deductible. It is a common mistake among taxpayers that in order to receive a charitable contribution deduction, all they simply need to do is donate cash or property to a qualified organization. There is also the concept of “donative intent” that arises among any good tax donation.
Donative intent essentially is the idea that an individual has not received any benefit or been placed under any pressure to make a gift or contribution. Therefore, an individual has made a contribution with the intent of not receiving anything in return and did so willingly without any potential influence.
In the case of DeJong v. Commissioner, 36 TC 896, the concept of donative intent is demonstrated by a father who belonged to a church that operated the school where his children attended. The father was encouraged by the church to “contribute” the full cost of the children’s education to the church. Dejong also contributed additional funds to the church in excess of what was purported to be for the school. DeJong, who claimed the charitable tax deduction attributable to the children’s education, was denied as a result of this concept.
So let’s examine the ALS Ice Bucket Challenge scenario. Let’s assume you were challenged from someone on Facebook to take this challenge or contribute to ALS. Then, assume you are unable or unwilling to have freezing water poured on your head and chose to donate to ALS. Would this establish a donative intent for such contribution or are you making the contribution in order to avoid being publicly ridiculed by your Facebook friends? Did you make the donation with the anticipation of receiving the benefit of not having a bucket of ice-cold water poured on you? Could the IRS deny or limit the amount of such contribution based on these circumstances? What are your thoughts?