Donors get $1.1 billion by skirting tax laws

U.S. taxpayers routinely violate rules requiring them to prove the value of noncash contributions to charities, costing the government $1.1 billion in 2010, according to the Treasury Inspector General for Tax Administration.

Under U.S. tax law, noncash donations exceeding $500 must be accompanied by a tax form detailing the contribution and the recipient. The most valuable donations -- of art, historic building easements and items worth more than $500,000 -- require taxpayers to submit an appraisal.

The inspector general’s study of 507 tax returns found that about 60 percent didn’t comply with the rules. They didn’t file the correct forms or provide clear descriptions of what was donated.

In its response to the report, the Internal Revenue Service said it will request documentation from more taxpayers and revise the form.

Michelle Eldridge, a spokeswoman for the IRS, said in a statement the agency will “make improvements” on the issue. Still, she said the IRS disagrees with the report’s estimate of potential lost revenue.

“The figure they cite is potentially misleading as an unsubstantiated expense does not automatically equate to an unallowable expense, and subsequent enforcement actions were not taken into account,” she said.