LUTZ BUSINESS INSIGHTS
year-end charitable contribution documentation for nonprofits
deyna rouse, tax shareholder
As year-end nears, charities are often in a last-minute push to solicit contributions from supporters. This timing coincides with the year-end tax planning many donors are doing to maximize their tax deductions for the current year, making it an opportune time to revisit the requirements of charitable organizations and their donors for substantiating charitable contributions to ensure maximum tax benefit. No organization would want to inhibit a donor’s ability to deduct their gift due to poor acknowledgment practices. Below are some reminders for organizations to consider when reviewing their acknowledgments to ensure all necessary information is included.
Internal Revenue Code Section 170(a) and associated Regulations establish the substantiation requirements for deductibility. For contributions of $250 or more, they indicate that the taxpayer must have a contemporaneous written acknowledgment from the charitable organization regarding the gift. IRC §170(f)(8)(C) indicates that “contemporaneous” means the taxpayer must have obtained the acknowledgment on or before the filing date of the return on which the donation deduction is claimed. If the return is filed late, the acknowledgment is required to have been received by the due date (including extensions) of the tax return where the deduction is claimed. A best practice for organizations is to ensure all acknowledgments are sent out by at least January 31st of the year following the donation. However, many choose to acknowledge very shortly after the gift is received rather than waiting until the end of the year.
The acknowledgment itself must include at least the following three pieces of information to be considered complete for deduction purposes:
- The amount of cash and a description (but not value) of any property other than cash contributed;
- Whether the donee organization provided any goods or services in consideration, in whole or in part, for any property contributed; and
- A description and good faith estimate of the value of goods or services provided by the organization in connection with the amount contributed, or if such goods and services consist solely of intangible religious benefits, a statement to that effect.
If Item 2 above applies, these are referred to as quid pro quo contributions. This is necessary because donors can only deduct the amount of contribution that exceeds the value of goods and services received from the organization, such as a meal at a gala fundraiser. Charitable organizations must carefully quantify and document the value of such items and disclose them to donors in their contribution acknowledgments.
When property other than cash is donated, it is the donor’s requirement to assert the fair market value of what was donated. As a best practice, organizations should not provide an estimated fair market value for property donated to them by supporters, as this could expose the organization to risk if the IRS later denied or reduced the amount of the deduction allowed to the donor. Other special considerations exist when property other than cash is contributed. For example, property with a fair market value in excess of $5,000 is required to be substantiated by a qualified appraisal. Contributions of motor vehicles may also require subsequent IRS reporting on the part of the charitable organization as well. Organizations that accept these types of contributions should consult with their tax advisors to ensure compliance with all reporting and documentation requirements.
ABOUT THE AUTHOR
DEYNA ROUSE + TAX SHAREHOLDER
Deyna Rouse is a Tax Shareholder at Lutz with over 15 years of experience in taxation. She leads the IRS audit consulting and representation efforts at Lutz and regularly advises on IRS collections and procedural issues.
AREAS OF FOCUS
AFFILIATIONS AND CREDENTIALS
- American Institute of Certified Public Accountants, Member
- Nebraska Society of Certified Public Accountants, Member
- Certified Public Accountant
- BSBA in Accounting, with highest distinction, Creighton University, Omaha, NE
- Great Plains Federal Tax Institute, Board Member
- Gesu Housing, Board Member
- Friends of Nebraska Children, Board Member
- Rose Theater Guild, Board Member
- Nebraska Children & Families Foundation, Past Board Member
- Junior League of Omaha, Past Board Member
- Junior League of Omaha Foundation, Past Board Member
- Literacy Center of the Midlands, Past Board Member
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