Federal Agency Examines How Taxpayers Report Cash Contributions

The U.S. Government Accountability Office, the investigative arm of Congress, has released a report on the “misreporting” of cash contributions to charities by individuals.

In 2001, an estimated 46 percent of taxpayers who deducted cash contributions misreported their deductions, the agency said. “About 79 percent of misreporting taxpayers overstated a total of $16-billion in contributions while about 21 percent of misreporting taxpayers understated a total of $2.2-billion in contributions,” said the report.

In 2008, the IRS examined about 175,000 taxpayers “who potentially misreported cash contributions, out of about 1.4 million individual taxpayers it examined that fiscal year, and adjusted cash-contribution amounts by $593-million in net terms,” the agency said.

The Government Accountability Office said that “one approach that tends to lead to high levels of taxpayer compliance is information reporting, through which third parties, such as employers or banks, file returns with IRS and taxpayers that provide information on a variety of taxpayer transactions. IRS tries to match information from information returns filed by third parties against taxpayers’ income tax returns to see if taxpayers have filed returns and reported all their income. Currently, information reporting is not required for cash contributions to charities.”

But the Government Accountability Office said that requiring information reporting for charitable cash contributions may not be an effective way to improve taxpayers’ compliance with the law.

“Charities could incur substantial costs and burdens if they were required to file information returns with IRS and taxpayers on the cash contributions they receive,” the agency said.