Your donors are the crux of your organization. Without their financial support and other contributions, your organization could not survive. For this reason, you want to make sure that you reciprocate by substantiating charitable gifts they can deduct on their income tax returns.
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The IRS provides a number of guidelines or “substantiation rules” that must be followed in order to claim a deduction.
No Documentation, No Tax Deduction
Just how picky is the IRS regarding the documentation it needs to substantiate charitable gifts? It turns out pretty picky, indeed.
Consider the case of Mr and Mrs Durden. In 2007, the Texas couple made $25,171 in contributions to their church. They had written checks documenting their donations, and the church sent them a written acknowledgment of receipt. But because the gift acknowledgment did not mention whether the Durdens had received any goods or services in exchange for their contributions as required by the IRS, the deduction was not allowed.
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The couple then obtained a second receipt dated June 21, 2009, from their church which stated that they had not in fact received any goods or services in exchange for their donations. But, this second attempt was rejected as well. The IRS responded that it failed to meet their “contemporaneous” requirement which states that the letter or receipt must be received by the donor at the time of the donation. (This generally means before the tax return for that year is filed)
Ultimately, the Tax Court upheld the IRS’s decision to refuse the deduction.
Know the IRS’s Substantiating Charitable Gifts Rules
To help ensure that your donors do not get into to trouble with the IRS, your organization needs to do its part to be in full compliance with the substantiation and record keeping requirements. These requirements vary depending on the amount and type of the donation made.
The full details of these requirements can be found on the IRS website. Below is a brief rundown:
For cash donations under $250:
- If no goods or services were provided in exchange, then a canceled check or credit card receipt is required.
- If in kind donations of any goods or services were provided in exchange for a donation of $75 or more, your organization must provide a contemporaneous written acknowledgment that includes a description and good-faith estimate of the value of the goods or services.
For cash donations greater than $250:
- A contemporaneous written acknowledgment from your organization is required for each individual donation made by the donor.
For non-cash donations greater than $250:
- A contemporaneous written acknowledgment from your organization is required for each individual donation made by the donor. This acknowledgment should include the following:
- A description of the property
- A statement as to whether the recipient organization provided any goods or services in exchange for the gift
- If goods or services were provided, a good faith estimate of the value
For non-cash donations between $500 and $5,000:
- Like the smaller non-cash donations above, a contemporaneous written acknowledgment from your organization is required for each individual donation made by the donor.
- The requirements for non-cash donations valued over $500 include attaching a completed Form 8283 to the donor’s tax return.
For non-cash donations greater than $5,000:
- All non-cash donations that are valued at more than $5,000, additionally require that the donor obtain an appraisal from an independent third-party.
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Bottom Line
Your donors and their gifts are the lifeblood of your organization. Return your appreciation of their support by ensuring that you are in full compliance with the IRS. Let us know other ways your organization substantiates donor gifts?
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