IRS Eyes Charitable Donation Abuse, Targeting Noncash Valuations in New Audits

The IRS is opening new audits into charitable donation abuse, with tax professionals pointing to inflated noncash valuations for assets such as art and medical devices. The reported examinations focus on overstated deductions, not ordinary cash gifts.

The effort follows workforce cuts and leadership changes at the agency. A July 20, 2026 report described the new activity, but the material available does not include a signed IRS memorandum, named official or specific effective date for the audit criteria.

Valuation will sit at the center of many examinations. Taxpayers who claim deductions far above an asset’s fair market value can face questions about appraisals, donation records and whether the claimed amount can withstand review.

The rules already demand documentation. A donor generally must support the contribution and its value under Internal Revenue Code §170 and related regulations. The agency has long scrutinized arrangements in which charitable deductions rely on aggressive appraisals.

The 2026 law adds new limits to charitable deductions

The One Big Beautiful Bill Act, signed on July 4, 2025, changes how some taxpayers receive a tax benefit from giving. Beginning in tax year 2026, people who do not itemize can deduct up to $1,000 in cash contributions. Joint filers can deduct up to $2,000.

Itemizers face a separate threshold. Contributions must exceed 0.5% of adjusted gross income before they produce a tax benefit under the new rule.

Mark A. Luscombe, a principal federal tax analyst, said the floor will apply for the first time on 2026 returns. He warned that donors may need to plan contributions more strategically, including by grouping gifts into fewer tax years.

A taxpayer with $400,000 in adjusted gross income would reach the 0.5% threshold at $2,000. Giving below that amount would not produce a deduction under the new itemizer rule.

The law also limits the tax savings available to taxpayers in the highest federal income tax bracket. Their savings from charitable deductions are capped at 35 cents on the dollar, compared with 37 cents previously.

The new limits do not replace valuation rules. A donor still must establish what property was given, who received it and why the claimed value is defensible.

Appraisals and retained control draw scrutiny

The 2026 IRS Dirty Dozen, issued March 9, 2026, identified several structures tied to the broader enforcement effort. Inflated appraisals remain a central concern, including claims involving syndicated conservation easements and art donations.

The agency is also examining charitable limited liability companies. Field Attorney Advice 20260401F describes the use of anti-abuse doctrines to disregard structures when donors retain control over assets described as donated.

A conservation easement can involve complex valuation questions. The IRS provides information on its enforcement approach to conservation easements, including arrangements that generate deductions based on the claimed reduction in a property’s development potential.

Charitable Remainder Annuity Trust arrangements have moved into a separate enforcement category. On July 9, 2026, the agency designated certain CRAT arrangements as listed transactions, requiring taxpayers and advisers to disclose them or face steep penalties.

The designation affects reporting as well as substance. A taxpayer may need to identify the transaction and provide related information even when the arrangement was presented as a charitable planning strategy.

New scrutiny extends beyond the donated property

The Treasury Department has also described a broader transparency initiative for tax-exempt organizations. Treasury Secretary Scott Bessent said on April 23, 2026:

“Public money and tax-exempt status demand public accountability. We are ending the days of hiding fraud, abuse, and extremist activity behind complicated nonprofit arrangements. When bad actors misuse charitable structures, directors and officers should understand that transparency can lead to scrutiny, accountability, and liability under the law.”

The initiative would revise Form 990 reporting for fiscal sponsorship arrangements and government grants. The stated goal is to give regulators clearer information about nonprofit funding and the use of taxpayer dollars.

The Form 990 effort differs from an audit of an individual donor’s deduction. It could nevertheless expose relationships among donors, charities, sponsored projects and grant recipients that prompt further questions.

Treasury also said on July 17, 2026, that its High-Income Examiners program had recovered billions from under-audited high-wealth segments. The program forms part of the wider focus on complex structures and taxpayers with large or unusual deductions.

The agency has identified approximately 1,600 millionaires and billionaires for specialized audits involving structures such as CRATs and conservation easements. That figure describes a high-risk list, not a finding that every person on it violated tax law.

Recordkeeping can determine whether a deduction survives

Documentation remains a basic dividing line in a charitable-contribution examination. On July 15, 2026, the agency reminded taxpayers that contributions of $250 or more require a contemporaneous written acknowledgment from the recipient organization.

Electronic bank records alone are no longer sufficient for larger gifts under the new enforcement guidelines. The acknowledgment should establish the contribution and address whether the donor received goods or services in return.

Property donations require more than a payment record. The donor may need appraisal support, an explanation of the property’s condition and evidence connecting the claimed value to fair market value.

That burden grows when the property is unusual. Art and medical devices can carry values that vary according to condition, market demand, restrictions and intended use.

A return claiming $50,000 in donations against $100,000 of income may be flagged as disproportionate under the agency’s developing use of data analytics and artificial intelligence. A flag does not establish an improper deduction, but it can lead to questions and a request for records.

Enforcement and deduction planning are moving together

The House Ways and Means Committee approved legislation on July 1, 2026, to modernize the IRS workforce and adopt AI-driven methods for audit selection, including methods aimed at nonprofit transparency.

Separately, tax professionals have described 2026 as the year of the “Giving Audit.” Their concern is not limited to taxpayers who donate property. The 0.5% floor may push donors toward bunching contributions into one year, while heightened review makes valuation and substantiation more consequential.

The agency’s attention to complex philanthropy also includes arrangements that do not fit a simple donor-to-charity transfer. Conservation easements, CRATs, charitable LLCs and fiscal sponsorships each involve different legal and reporting questions.

Associate Chief Counsel Holly Porter has emphasized an “all-or-nothing” approach to technical compliance in discussions of the CFC landscape after the new law. The discussions have also used the phrase “cliff test” for technical accuracy in charitable appraisals.

Those comments concern a broader compliance context rather than a named audit standard for the new examinations. The reported audit activity still lacks a publicly identified memo setting out selection rules or valuation thresholds.

Taxpayers preparing 2026 returns will face the new limits in the filing season that follows tax year 2026. Donors claiming property deductions should preserve the appraisal, acknowledgment, transfer records and other material supporting the claimed amount.

This article is for informational purposes only and does not constitute tax advice. Consult a qualified tax professional or CPA about your specific situation.