October, 2008 Special Edition

New Rules for Charitable Contribution Documentation

In recent years, Congress has tightened the rules that MUST be complied with to obtain a deduction for charitable contributions. A recent court case illustrates how easy it is to run afoul of the documentation requirements.

In the case, the taxpayers donated several thousand dollars to their church during the tax year. Although the donations were made by check, the IRS disallowed all but a few hundred dollars of them because the taxpayers failed to obtain a timely receipt from their church to support the donations. Such receipt (or receipts) must be received by the time you file your return for the year of the donation (or, if earlier, by when the return is due). In addition, it must list any significant goods or services received in return for the donation (other than intangible religious benefits) or specifically state that the donor received no goods or services from the charity. In the case at hand, the taxpayers waited until their charitable deduction was challenged before trying to get a proper receipt. By then, of course, it was too late.

Why did the IRS only allow a few hundred dollars of the claimed deductions? The requirement to obtain a receipt only applies where a single donation (or a group of related ones) totals $250 or more. Eight of the taxpayers' donations during the year (combined, a little over $400) were for less than this amount. Thus, their cancelled checks were sufficient support for the deduction.

Separate from this court case, the IRS recently released new guidance on substantiating contributions. One area of focus is on the relatively new requirement that when donating cash, taxpayers can only obtain a deduction if they have a proper receipt from the charity. For taxpayers who incur unreimbursed out-of-pocket expenses while performing charitable work, this appeared to create a situation where such taxpayers might lose their deductions for these types of expenses since it is generally not practical to obtain receipts from charities for out-of-pocket expenses they know nothing about. Fortunately, the IRS has indicated they plan to adopt the common sense rule that if the out-of-pocket expenses for a charitable activity or event are less than $250, the donor can document the expenses simply by keeping appropriate purchase receipts or other reasonable written evidence.

We have included below a table that summarizes the documentation rules for charitable contributions. Please contact us if you have specific questions.

Type of Donation Amount Given in a Single Donation
Less than $250 $250 to $500 $501 to $5,000 Over $5,000
Cash Bank record or written receipt from charity1 Acknowledgment2 Acknowledgment2 Acknowledgment2
Payroll deduction
  • Paystub, W-2, or other reliable written record from employer
  • Documentation from charity3
  • Paystub, W-2 or other reliable written record from employer
  • Documentation from charity3
  • Paystub, W-2 or other reliable written record from employer
  • Documentation from charity3
  • Paystub, W-2 or other reliable written record from employer
  • Documentation from charity3
Out-of-pocket expenses while serving as a volunteer Receipt, cancelled check, or other reliable written records
  • Receipt, cancelled check, or other reliable written records
  • Acknowledgment4
  • Receipt, cancelled check, or other reliable written records
  • Acknowledgment4
  • Receipt, cancelled check, or other reliable written records
  • Acknowledgment4
Noncash:5
a. Publicly traded stock Receipt or reliable written records6
  • Acknowledgment2
  • Receipt or reliable written records6
  • Acknowledgment2
  • Reliable written records6,7
  • Acknowledgment2
  • Reliable written records6,7
b. Nonpublicly traded stock Receipt or reliable written records6
  • Acknowledgment2
  • Reliable written records6
  • Acknowledgment2
  • Reliable written records6,7
  • Acknowledgment2
  • Reliable written records6,7
  • Qualified appraisal if FMV > $10,0008,9
  • Declaration of appraiser and donee acknowledgment (Form 8283)
c. Artwork Receipt or reliable written records6
  • Acknowledgment2
  • Reliable written records6
  • Acknowledgment2
  • Reliable written records6,7
  • Acknowledgment2
  • Reliable written records6,7
  • Qualified appraisal (must attach to return if FMV > $20,000)8
  • Declaration of appraiser and donee acknowledgment (Form 8283)
d. Qualified vehicles (motor vehicles, boats, and planes) Receipt or reliable written records6,10
  • Form 1098-C or other written acknowledgment
  • Reliable written records6,10
  • Form 1098-C (attached to tax return)
  • Reliable written records6,10
  • Form 1098-C (attached to tax return)
  • Reliable written records6,10
  • Donee acknowledgment (Form 8283)
  • Qualified appraisal if deduction not limited to gross proceeds from vehicle's sale.
e. All other noncash donations Receipt or reliable written records6
  • Acknowledgment2
  • Reliable written records6
  • Acknowledgment2
  • Reliable written records6,7
  • Acknowledgment2
  • Reliable written records6,7
  • Qualified appraisal8,9
  • Declaration of appraiser and donee acknowledgment (Form 8283)

1 Recordkeeping requirements are satisfied only if the donor maintains either a bank record (most likely a cancelled check, wire transfer acknowledgement, or credit card record) or a written communication for the charity showing the name of the donee organization, the date of the contribution, and the amount of the contribution [IRC 170(f)(17)].

2 Written acknowledgment from the charity must include a description of the property or amount of cash donated plus a statement as to whether the donor received any goods or services (with a good faith estimate of value) in connection with the donation [Reg. 1.170A-13(f)]. If the donor received intangible religious benefits, the acknowledgment must say so, although no valuation of such benefits is required. Taxpayers must receive the acknowledgment before the earlier of (a) the date the return for the year of the donation is filed or (b) the due date, including extensions, for filing the return. The acknowledgment can be either a paper copy or in electronic format, such as an email addressed to the donor (IRS Pub. 1771).

3 Donor must obtain a pledge card or other documentation from the charity that also states that the charity does not provide goods or services in return for any contribution made to it by payroll deduction.

4 Acknowledgment from charity must contain (a) a description of the services provided, (b) a statement as to whether the charity provided any goods or services in return for the services and if so, a description and a good faith estimate of their value (or a statement that only intangible religious benefits were provided). The acknowledgment must be received the earlier of the date the volunteer's return for the year of the volunteer efforts is filed or the return due date, including extensions.

5 Form 8283 (Noncash Charitable Contributions) must be filed if the total deduction for noncash contributions is more than $500.

6 Reliable written records must include the following information: (1) name and address of donee organization; (2) date and location of the contribution; (3) description of the property; (4) FMV of the property (or cost, if election is made to reduce FMV for appreciated property); (5) information related to contributions of partial interests in property, if applicable; and (6) terms of any conditions attached to the donation, if applicable [Reg. 1.170A-13(b)(2)(ii)]. For donations of less than $250, reliable written records are required when it is impractical to obtain a receipt from the donee organization [Reg. 1.170A-13(b)(1)]. For used clothing and household items, property must be in "good condition or better" unless value is over $500 and a qualified appraisal report is attached to the tax return [IRC Sec. 170(f)(16)].

7 In addition to items described in footnote 3, records must include information on how and when the property was acquired. Records of cost or adjusted basis must also be maintained if the property (other than publicly traded securities) was held for less than 12 months and, if available, the cost or adjusted basis of property held 12 months or more [Reg. 1.170A-13(b)(3)].

8 The appraisal must be performed by a "qualified appraiser," as defined in IRC Sec. 170(f)(11)(E)(ii) (or IRS Notice 2006-96 for appraisals of personal property).

9 For property donations in excess of $500,000, the appraisal must be attached to the return.

10 Qualified vehicle donations must be acknowledged in writing and the acknowledgment must include the name and taxpayer identification number of the donor, the vehicle identification number, and the date of the contribution. For qualified vehicles valued at over $500, donors must obtain from the donee organizations Form 1098-C (Contributions of Motor Vehicles, Boats, and Airplanes) and attach Copy B to their Form 1040s. Form 1098-C, which is prepared to provide the donor with the necessary information regarding the vehicle donation, is optional for contributions valued at $500 or less, but mandatory for vehicles valued at over $500. In addition, the following substantiation rules apply:

  • Charity sells without significant use or material improvement:The charity's acknowledgment must contain the sale date, a certification that it was sold at arm's length between unrelated parties, the gross proceeds from the sale, and a statement that the charitable deduction is limited to the gross proceeds from the sale.
  • Charity's significant use or material improvement before disposition:The charity's acknowledgment must contain the information in the first sentence of this footnote and a certification and detailed description of the intended material improvement or the intended significant intervening use and the intended duration of such use and a certification that the vehicle won't be sold before completion of such use or improvement.
  • Charity gives or sells at significantly discounted price to needy individual in a qualified transfer:The charity must give the donor a statement to this effect and provide the information discussed in the first sentence of this footnote.

The goal of Shriver & Company, P.S.C. is to provide our clients with timely personal service. Since space limitations require generalizations, appropriate professional advice should be obtained before acting upon this information. Please call if you would like additional details about any of the topics discussed.

Pursuant to Treasury Regulations concerning Circular 230, please be advised that any tax advice contained in this communication was not intended or written to be used, and cannot be used, by the recipient for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code.

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