In February, an Oklahoma District Court ruled against the IRS, allowing the owners of Hobby Lobby to take a $4.75 million charitable deduction despite a clerical error made by the taxpayers at the time the charitable contributions were made.

The charitable contributions at issue were made by Hob-Lob LP, which in turn owns more than 99% of Hobby Lobby Stores, Inc. The checks issued to the charities where incorrectly issued on checks from Hobby Lobby Stores, Inc., instead of on checks from Hob-Lob LP.  Once the error regarding the checks was discovered, Hobby Lobby Stores, Inc., was reimbursed, letters of correction were sent to the appropriate parties, Hob-Lob LP's and Hobby Lobby Stores, Inc.'s books were corrected and all involved parties signed affidavits attesting to the facts underlying the clerical error.

The court found that the charitable contributions, while initially paid using Hobby Lobby Stores, Inc.'s checks, were ultimately liabilities of Hob-Lob LP due to the ownership structure at play. The judge also noted that the clerical error was thoroughly addressed once it was discovered.  These factors, along with an overriding public policy to encourage charitable contributions all weighed in favor of allowing the charitable deduction despite the clerical error.

This case is an important win for charitably-inclined taxpayers looking to do good in the face of the highly-regulated world of exempt organizations. While the IRS looks to strictly enforce rules regarding charitable contributions (some of which are discussed here), this case is proof that some courts are willing to take a more liberal view of these rules to encourage charitable giving.

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