Most taxpayers making charitable contributions will transfer their own funds or property to the charitable recipient. What happens if another person or entity makes the actual transfer to the charitable recipient?
Prior case law will allow a charitable deduction to a taxpayer, if the funding of the charitable contribution is made by an agent of the taxpayer acting for the taxpayer. Skripak, 84 TC 285 (1985) ; Weitz, TC Memo. 1989-99.
A recent Tax Court Memorandum decision expands on these principles. The key take-always from the decision are:
a. For the taxpayer to be able to deduct the contributions, the taxpayer will need to show that he or she bears the economic burden of the contributions.
b. A written agency agreement establishing the agency relationship is not required. However, there must be some evidence of the agent’s asset to act on the taxpayer’s behalf.
c. Agency will be easier to establish when the agent has property of the taxpayer and uses that property to make the contribution.
d. However, and contrary to the desire of the IRS, if the agent uses its own funds with the understanding that the taxpayer will reimburse the agent, the taxpayer will be treated as bearing the economic burden of the contributions. An actual failure to reimburse, however, will open the door to denial of the deduction.
Zavadil, TC Memo 2013-222