Reporting a refund of a charitable donation on your taxes?

April 1, 2008 8:47 PM

Say you report a charitable donation on your taxes, and then, a few years later, you get the organization to give you your money back. How do you report the refund?

Every so often I hear about a Scientologist who leaves Scientology and gets some or all of their money back. (I'm a Scientology debunker, so I hear about this stuff.) With tax time coming up, I'm curious about the tax implications of a refund of a charitable donation you wrote off in the past.

Say you donate $50,000 to Scientology in 2002, and declare it on your taxes, and then you leave Scientology, and get them to give you back that $50,000 in 2006. How do you report that? How would that work with the IRS?

If it matters, there are two kinds of Scientology donations - the kind of donations you usually think of with non-profit organizations, where you just give money toward a cause like setting up a new chapter of the group or buying a new building, and a second kind which is a payment earmarked for Scientology services you plan to take. (Yes, this violates the typical interpretation of charitable donations not being attached to any benefit received by the donor; nevertheless, that's how the IRS handles Scientology fees at this point in time.) So, if there's a difference between getting back, say, money given to support starting a new Scientology org (which would be a more standard type donation) and what's called in Scientology "money on account," I'd love to hear that, too. Example: Annie Body gives $10,000 to the International Association of Scientologists just to generally support what they do, and also pays $20,000 toward the next courses she plans to take. She reports $30,000 as a charitable donation on her taxes. Three years later, she leaves and manages to get them to give it all back. How does she report the refund?

posted by kristi to law & government (6 comments total)

Perhaps filing an amended return for the year in question?
posted by dcjd at 8:52 PM on April 1, 2008

If you took it as a deduction, you take it as income when it is returned.
posted by JohnnyGunn at 8:52 PM on April 1, 2008

If Scientology wrote you a check for $50k, they'd probably 1099 you for it.
posted by clh at 8:55 PM on April 1, 2008

Seconding JohnnyGunn - you have to treat it as income.
The situation is similar to when you claim state taxes paid as an itemized deduction, and then you find that you overpaid your state taxes and get a state tax refund - that refund is added to your next years income.
posted by Arthur Dent at 9:00 PM on April 1, 2008

The taxpayer shouldn't file an amended return because no mistake was made in the year the contributions were deducted. They really were charitable contributions in the year made, so they really should've been deducted.

The return of the contributions in the subsequent year will be income, but only to the extent that deducting the contribution reduced the taxpayer's tax liability. This is called the tax benefit rule.
posted by Mr. President Dr. Steve Elvis America at 10:15 PM on April 1, 2008

Thanks for the great info! I favorited Arthur Dent and Mr. President Dr. Steve Elvis America for the cite and analogy.

Thanks!
posted by kristi at 2:09 PM on April 5, 2008