IRS Watchdog Wants Fairness For Charitable Deductions

In January 2023 the head of an internal IRS watchdog — the Taxpayer Advocate Service (TAS) —  submitted her annual report to Congress with a list of recommendations to make her agency more effective and taxpayer-friendly. Among her suggestions were several that could benefits churches and ministries.

Erin Collins, who joined the TAS in 2020, noted, “In my role as the National Taxpayer Advocate, I serve as the voice of the taxpayer at the IRS, and this report is really a product of listening to individual taxpayers, business taxpayers, and tax practitioners and hearing their concerns.”

Unfortunately, one major problem for taxpayers and practitioners is that they cannot connect with the IRS when needed. They can never seem to get through to a live person. According to the report only 12.5 percent of calls from the public to the IRS were answered — 10 million fewer answers than the year before — and hold times for those who did get through extended for nearly a half-hour on average. Tax professionals, whom Collins called “key to a successful tax administration,” did not fare much better at a 17 percent answer rate.

Collins recognizes that paper backlogs exasperated by the COVID-19 pandemic and administration of related stimulus and tax relief programs have weighed on the agency, but she wants the IRS to re-focus its energy on serving taxpayers.

“Being transparent and managing expectations will be important to regain public trust,” she wrote.

Her report outlines 65 recommendations for Congress to consider as it attempts to help the agency serve the American people. Several would amplify the importance of the Taxpayer Bill of Rights, as well as the independence and authority of the TAS — by allowing the TAS to file amicus briefs and ensuring its comments in rulemaking proceedings are addressed, for example. However, one notable inclusion in Collins’ top ten requests would benefit charities and their donors. Specifically, she wants Congress to ease requirements for written receipts about donations in a way that honors the true spirit behind charitable deduction law.

Right now taxpayers must receive a written acknowledgement of their donations from recipient charities before filing a tax return. An acknowledgement coming even a day later than a tax filing officially disallows a deduction for the donation. This contemporaneous written acknowledgment” requirement leaves no room for exceptions — even common sense ones — and, according to Collins, is so strict only here in the tax code. She recommends an “adequate written documentation” standard that would still prevent quid pro quo abuse but would honor “congressional policy to encourage charitable giving.”

The Taxpayer Advocate also called for standardization of deductible mileage rates. In particular, she noted that while the IRS may calculate business mileage deduction rates (currently 62.5 cents per mile), vehicle use for charity can only be deducted at a much lower rate of 14 cents per mile. The charitable rate was established in the tax code in 1998 and has never been adjusted for inflation. Collins pointed out that the charitable rate “does not reflect the current costs of automobile usage” and calls for a single mileage rate across business, charitable, and medical/military moving deductions.

While dozens of other suggestions in the TAS report are noteworthy, one recommendation may be particularly appealing to any organization or leader randomly selected for an IRS “National Research Program” audit. These proceedings are intended to help the agency improve its processes, but they put a heavy weight on the shoulders of those being scrutinized.

“In essence, these taxpayers, even if fully compliant, serve as ‘guinea pigs’ to help the IRS improve the way it does its job.  They must contend with random and intensive audits that consume their time, drain resources (including representation fees), and may impose an emotional and reputational toll,” the TAS report states.

Collins recommends compensation by way of a tax credit for those “guinea pigs” who turn out to be compliant, as well as a waiver on tax, interest, and penalties resulting from such an audit.

Only a relative handful of past TAS recommendations have become law, but this report is a significant marker at a time when Congress is watching the IRS closely. ECFA will monitor the effect of these suggestions carefully.


This text is provided with the understanding that ECFA is not rendering legal, accounting, or other professional advice or service. Professional advice on specific issues should be sought from an accountant, lawyer, or other professional.