Noncash Charitable Giving: Evidence of Aggressive Taxpayer Reporting Following a Compliance Change

Abstract

Treasury Decision (TD) 8002 significantly relaxed the substantiation requirements for deducting noncash charitable contributions under $501 for tax years 1985 and after. We present evidence that TD 8002 caused a significant change in taxpayer behavior. Specifically, the relatively stable percentage of taxpayers who claimed zero noncash charitable deductions in years prior to TD 8002 decreased consistently and significantly after TD 8002's implementation. The decrease in zero noncash deduction taxpayers was largely replaced by taxpayers who reported noncash charitable deductions for amounts just under TD 8002's relaxed substantiation requirement (i.e., amounts just under $501). We present a series of tests supporting the contention that the increase in reported noncash charitable deductions is largely attributable to more aggressive reporting behavior rather than increased charitable giving.