We’ve written on this topic many times,[1] but it’s worth repeating as it routinely costs taxpayers their charitable deductions. Charitable contributions must be properly substantiated in accordance with IRC Section 170 and the related Treasury Regulations. At issue in this case is the contemporaneous written acknowledgment required for cash donations more than $250 which must state the amount of cash received as well as whether any goods or services were received in return, among other requirements.[2] While not at issue here, it is also worth noting that noncash charitable donations in excess of $500 must be supported by a qualified appraisal or other supporting documentation required by statute.[3] In a recent Tax Court case[4], the taxpayer was unable to properly substantiate his charitable deductions and thus the deductions were denied, as were other business expenses.
While the focus of this article is on the charitable deductions, it should also be noted, as seen below, that the burden proof for other deductions, including business expenses, is on the taxpayer.[5]
Dax Johnson (“Johnson”) was a mediator who worked for the City of Baltimore. He earned $76,927 of W2 wages from this job in 2018. Johnson did not timely file his 2018 income tax return resulting in the IRS creating a substitute return for him and issuing a Notice of Deficiency based on the same. Around the same time of the Notice of Deficiency, Johnson filed a 2018 income tax return, claiming $43,258 in cash charitable contributions to a foundation set up to investigate the murder of his nephew and bring the killer to justice (“Foundation”). The Foundation was a tax-exempt entity with 501(c)(3) status. It is worth noting, as stated in the opinion, that the Foundation completed its work in 2019 and justice was obtained for Johnson’s late nephew.
In addition to the cash charitable contributions, Johnson claimed $7,300 in noncash charitable contributions to Goodwill and other charitable organizations. He also claimed his principal business as cleaning services reporting $500 of income and $5,300 of related expenses.
During the Tax Court trial, Johnson testified as to the cleaning business and the related expenses, but the Court found his testimony was “not implausible, but it was vague and nonspecific” and he failed to introduce any documentary evidence. As to the charitable donations of cash, Johnson provided a letter from the Foundation that had not previously been provided, stating that Johnson had contributed $43,258 in cash, and that nothing was received in return. The Court admitted the letter to evidence despite the IRS objection. Nevertheless, the letter was not wholly reliable and the date had a different font than the body of the letter. Additionally, Johson claimed all the cash was taken out from ATMs and then donated, and that he had withdrawal receipts. However, Johnson was unable to provide such withdrawal receipts. He also stated in his testimony that some of the cash was paid to informants for information, and that as such, no records were available.
As to the business expenses, the Court quickly concluded that they were not convinced Johnson was in the trade or business of providing cleaning services or that his claimed expenses had any connection to a trade or business, and as such, were not deductible as he failed to meet the burden of proof. The Court highlighted the fact that Johnson could not provide much information about the business, including business rates, frequency of jobs, days worked, or clients. He also failed to offer any supporting documentation regarding the expenses.
Moving on to the charitable deductions, the “major issue” as the Court put it, the Court began its analysis by noting the following:
For all contributions over $250, section 170(f)(8) requires a contemporaneous written acknowledgment from the donee organization that specifies the amount of cash and whether any goods or services were provided in return. Section 170(f)(17) further directs that no deduction is allowed for any cash contribution “unless the donor maintains as a record of such contribution a bank record or a written communication from the donee showing the name of the donee organization, the date of the contribution, and the amount of the contribution.” On its face, the letter from the Foundation satisfies these requirements.[6]
While the written communication from the Foundation was provided at trial and admitted into evidence, the Court noted that such did not irrefutably prove the donation was made, and even if made, that it was deductible. The Court stated that in this case, there were some reservations about it and the numbers on Johnson’s return were “shaky and unsupported”. Johnson had failed to produce any of his own bank records or any of those of the Foundation, ultimately failing to provide any evidence other than his testimony and the suspicious letter from the Foundation. In the end, the lack of evidence and substantiation could not be overcome by Johnson’s testimony, and the Court concluded that the IRS’ denial of the cash charitable deductions was correct. In doing so, the Court found that Johnson had likely made some contributions to the Foundation and likely provided cash to informants as he testified, but such was not made to the Foundation, and without any reliable evidence or records, no deduction could be allowed.
The Court did not mention the $7,300 of noncash charitable deductions, so it is unclear what happened to those, though the Court did sustain all the IRS determinations in the Notice of Deficiency other than those conceded. This issue was likely conceded by either Johnson or the IRS prior to trial.
Ultimately, this case serves as a reminder to keep good records in all areas affecting your taxes, whether it be business expenses or charitable donations. Had Johnson been able to provide some reliable evidence, bank statements, etc., on either the cash charitable contributions to the Foundations and/or his business expenses, he might have prevailed (assuming the expenses were actually incurred and the donations were actually made to the Foundation). And when it comes to charitable deductions, as noted in the opening paragraph, they are subject to their own special requirements which increase in complexity the higher the dollar value of the donation. So, taxpayers should use extra caution when making larger charitable donations, especially of the noncash variety, and make sure they are complying with all of the substantiation requirements to the letter.
[1] https://www.esapllc.com/substantiate-those-deductions-but-not-with-falsified-documents-chopra-2025/; https://esapllc.com/izen-jet-2022/ ; https://esapllc.com/reri-appeal/; https://esapllc.com/hoensheid-tc-2023/; https://esapllc.com/a-qualified-appraisal-for-crypto-cca/
[2] § 170(f)(8).
[3] § 170(f)(11).
[4] Johnson v. Commissioner, TC Memo 2025-87.
[5] INDOPCO, Inc. v. Commissioner, 503 U.S. 79 (1992).
[6] Johnson, TC Memo 2025-87.
