Substantiating Charitable Contributions and Written Acknowledgements
Many charitable organizations described in Internal Revenue Code (“Code”) section 501(c)(3), other than organizations that have as their charitable purpose testing for public safety, are eligible to receive tax-deductible contributions in accordance with Code section 170. Most eligible organizations are listed in the Tax Exempt Organizations Search tool located on the IRS website.
Quid Pro Quo Contributions
A charitable organization must provide a written disclosure statement to donors of a quid pro quo contribution in excess of $75. A quid pro quo contribution is a payment made to a charity by a donor partly as a contribution and partly for goods or services provided to the donor by the charity. For example, if a donor gives a charity $100 and receives a concert ticket valued at $40, the donor has made a quid pro quo contribution. In this example, the charitable contribution portion of the payment is $60. Even though the part of the payment available for deduction does not exceed $75, a disclosure statement must be filed because the donor's payment (quid pro quo contribution) exceeds $75. The required written disclosure statement must:
Inform the donor that the amount of the contribution that is deductible for federal income tax purposes is limited to the excess of any money (and the value of any property other than money) contributed by the donor over the value of goods or services provided by the charity, and
Provide the donor with a good faith estimate of the value of the goods or services that the donor received.
The charity must furnish the statement in connection with either the solicitation or the receipt of the quid pro quo contribution. If the disclosure statement is furnished in connection with a particular solicitation, it is not necessary for the organization to provide another statement when the associated contribution is actually received.
No disclosure statement is required when:
The goods or services given to a donor meet the standards for insubstantial value set out in Revenue Procedure 90-12 and Revenue Procedure 92-49;
There is no donative element involved in a particular transaction with a charity (for example, there is generally no donative element involved in a visitor's purchase from a museum gift shop); or
There is only an intangible religious benefit provided to the donor. The intangible religious benefit must be provided to the donor by an organization organized exclusively for religious purposes, and must be of a type that generally is not sold in a commercial transaction outside the donative context.
A penalty is imposed on a charity that does not make the required disclosure in connection with a quid pro quo contribution of more than $75. The penalty is $10 per contribution, not to exceed $5,000 per fund-raising event or mailing. The charity can avoid the penalty if it can show that the failure was due to reasonable cause.
Recordkeeping for Contributions
Under a new recordkeeping rule effective for all cash, check, electronic funds transfers, credit card charges, or other monetary contributions of any amount made in taxable years beginning after August 17, 2006, the donor must obtain and keep a bank record or a written communication from the donee as a record of the contribution. Written records prepared by the donor (such as check registers or personal notations) are no longer sufficient to support charitable contributions. Bank records for this recordkeeping requirement include bank or credit union statements, canceled checks, or credit card statements. They must show the date paid or posted, the name of the charity, and the amount of the payment. Taxpayers who claim charitable contributions made by payroll deduction can satisfy the recordkeeping requirement if the donor has (1) a pay stub, W-2, or other document furnished by the employer that states the amount withheld for payment to charity, and (2) a pledge card other document prepared by or at the direction of the charity that shows the name of a donee. An organization described in Code section 170(c), or a Principal Combined Fund Organization for purposes of the Combined Federal Campaign, will be treated as a donee organization for purposes of the new recordkeeping provision.
Charitable Contributions of $250 or More
A donor claiming a deduction of $250 or more is also required to obtain and keep a contemporaneous written acknowledgment for a charitable contribution. To be contemporaneous the written acknowledgment must generally be obtained by the donor no later than the date the donor files the return for the year the contribution is made. The donee is not required to record or report this information to the IRS on behalf of a donor. The donor is responsible for requesting and obtaining the written acknowledgement from the donee.
The written acknowledgment required to substantiate a charitable contribution of $250 or more must contain the following information:
Name of the organization;
Amount of cash contribution;
Description (but not value) of non-cash contribution;
Statement that no goods or services were provided by the organization, if that is the case;
Description and good faith estimate of the value of goods or services, if any, that organization provided in return for the contribution; and
Statement that goods or services, if any, that the organization provided in return for the contribution consisted entirely of intangible religious benefits, if that was the case.
In addition, a donor may claim a deduction for contributions of cash, check, or other monetary gifts only if the donor maintains certain written records. A donor may not claim a deduction for any contribution of cash, a check, or other monetary gift made on or after Jan. 1, 2007, unless the donor maintains a record of the contribution in the form of either a bank record (such as a cancelled check) or a written communication from the charity (such as a receipt or a letter) showing the name of the charity, the date of the contribution, and the amount of the contribution. For more information, see IRS Publication 1771 Charitable Contributions Substantiations and Disclosure Requirements.
The contemporaneous written acknowledgment may be contained in the same document as the written communication from the donee used to satisfy the new cash recordkeeping requirement, as long as it contains all information required by both the recordkeeping requirement and the contemporaneous written acknowledgment requirement.
Claimed Contributions Over $5,000
For claimed contributions over $5,000, generally a qualified appraisal prepared by a qualified appraiser must be obtained. For appraisals prepared in connection with returns or submissions filed after August 17, 2006, see IRS Notice 2006-96.
Household Items and Clothing
Household items and clothing contributed to charity after August 17, 2006 must be in at least good used condition to be deductible. This requirement does not apply to contributions of food, paintings, antiques, other art objects, jewelry and gems, or collections, and does not apply to a contribution of an item for which a deduction of more than $500 is claimed if the taxpayer obtains a qualified appraisal of the item.
Vehicle Donations
Additional substantiation and disclosure rules may apply when a donor contributes a vehicle to a charitable organization and claims the value of the vehicle is more than $500. See IRS Publication 4302, A Charity's Guide to Vehicle Donations, and Publication 4303, A Donor's Guide to Vehicle Donations, for more information.