In a recent court case, the tax court disallowed approximately $22,000 in charitable contributions made by the Durden family to its church. The family provided bank records and two separate written acknowledgment letters from the church to substantiate the charitable giving, but none of the documentation satisfied IRS requirements.
This case serves as a stark reminder that taxpayers need to know when and what kind of documentation is required by the IRS. Likewise, not-for-profit organizations who accept charitable donations have an obligation to provide their donors with the proper documentation in a timely manner. This ensures that donors receive the full benefit of their charitable giving.
Part of why the tax court disallowed the $22,000 in donations is that the acknowledgements that the family received from the church fell short. Specifically, the church did not include a statement of whether goods or services were provided in exchange for the payment. The family was unable to prove that the payments made were not in exchange for meals or other goods and services. The family also did not obtain the proper written acknowledgement from the church until after it had filed its tax return.
Taxpayers: Keep your donation documentation
The IRS requires proper documentation of any cash or non-cash gift to a qualified charitable organization in order for the deduction to be available to taxpayers. Deductions of cash contributions, regardless of the amount, must be substantiated by a written statement from the organization.
For gifts less than $250, the IRS also allows records that confirm a taxpayer's payment to a charitable organization such as a cancelled check, bank record, or payroll deduction record. For example, when you make a charitable donation via text message, such as when the Red Cross runs a text message donation plea for the storm victims, your telephone bill will satisfy the documentation requirement in the case of an IRS exam if the amount donated is less than $250.
Pay attention to due dates
As a taxpayer, you must obtain written acknowledgement for your charitable contributions on or before the earlier of: (1) the date you file your tax return for the year of the contribution; or (2) the due date of your tax return (including extensions). You must retain this statement in order to substantiate a tax deduction.
What about contributed land, cars, boats, and other high-value items?
If a taxpayer donates a motor vehicle, boat, or airplane to a charity with a value of more than $500, the donor must obtain a Form 1098-C from the charity. Copy B of the Form 1098-C needs to be attached to the donor's tax return in order to take the tax deduction.
Most non-cash gifts valued at more than $5,000 must be substantiated with extra documentation. These gifts have to be appraised by a qualified appraiser, and a taxpayer must attach the qualified appraiser's statement to the proper tax return along with Form 8283. The charity must also sign the Form 8283. For example, an appraisal is required to determine the donation amount of a tract of land to a charity. This appraisal must be attached to the tax return in order to substantiate the donation.
What can charities do to assist their donors?
In addition to a signed Form 8283 discussed above, for gifts of cash or property worth $250 or more, taxpayers must obtain a contemporaneous written acknowledgement from the charitable organization. The acknowledgement must include:
- The amount of the cash gift, and/or
- A description of any property donated, and
- A statement of whether the organization provided any goods or services to the donor in exchange for the gift.
Perhaps one of the most important pieces of information that the written acknowledgement contains is the statement of whether the organization provided any goods or services in exchange for the gift. It is very common to receive a good or service in exchange for a donation. For example, a donation to the local public broadcasting network often includes a gift of thanks. If the value of this gift is more than a nominal amount, the value must be subtracted from the total amount given to arrive at the tax deductible donation.
Qualified charitable organizations can help their donors meet these requirements by providing them with the proper the documentation in a timely manner. This written acknowledgement must include all of the requirements listed above. By helping your donors receive the full tax benefit of their charitable giving, you can help the donors who want to help your organization.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.