Charitable Substantiation Is More Than Just Sending Thank-You Notes
While donors are responsible for procuring the charitable substantiation, or written record, of their donations, most charities should work to simplify the giving process to make the act of making charitable contributions as convenient and rewarding as possible for the donor. This article will provide you with some important reporting rule reminders and tips nonprofit donors and donees should keep in mind all year long.
In order for a donor to claim a deduction on their tax return, keep in mind that they must receive some type of disclosure or written acknowledgement of their contribution, particularly when the following thresholds are met.
- Quid pro quo: While it might sound complicated, this is simply when a donor receives goods or services from a charity in exchange for a single donation in excess of $75.
- $250+: Donors who make a cash donation of $250 or more to a nonprofit organization must receive written acknowledgement of their contribution from the charity.
- $500+: More than $500 non-cash donations – With few exceptions, for non-cash donations in excess of $500, donors typically need to complete Form 8283 and the charity complete Part IV, (at the very bottom) of the same form, which allows the IRS to check that the donation was made to a qualified charitable organization.
- $5,000+: If a non-cash donation meets this particular threshold, it’s likely to require an official appraisal. The appraisal must also be reported on Form 8283 and signed by a certified appraiser in Part III of the form.
Charities may formally acknowledge a donation in a variety of ways, including (but not limited to) an email, a letter or a postcard. At the discretion of the nonprofit, the formal acknowledgement of a donor’s gift might include a variety of information. That being said, three items must be included in all written acknowledgements for suitable charitable substantiation for tax purposes.
- The name of the organization
- The value of cash contribution
- A statement that no goods or services were provided by the organization in return for the contribution (if that was, indeed, the case)
Additionally, for non-cash contributions, acknowledgements should include the following three items as well.
- Description of non-cash contribution
- For quid pro quo transactions, the charity should also describe the goods and/or services provided (not received) in exchange for a donation as well as a good faith estimate the value attributed to the goods and/or services that were provided in exchange for the donation.
- Special rules apply for donated automobiles, boats and aircraft. The forms, timing, and reporting rules vary based on specific circumstances, so it’s best to check with a professional or review IRS Publication 4302 before making any transfers.
Finally, it’s important to note that the following information should not be included in your acknowledgement.
- SSN’s of the donor(s)
- Value of non-cash contributions. (This is an area of common misconception, but IRS is quite clear on it’s stance in Publication 1771.)
Charities can issue written acknowledgement for cash donations throughout the year, at the end of the year … or both if they choose! Just remember that all acknowledgements for donations of $250 or more must be sent no later than Jan. 31 of the year following the donation. Here are some other timelines you’ll want to remember:
- 60 days – Appraisals must be made no more than 60 days before the date the charitable contribution is made.
- 90 days – There is a 90-day grace period for donors who have reasonable cause or a good-faith omission of filing Form 8283 or filing an incomplete Form 8283 with their tax return. Donors may submit a completed form within this time frame to meet IRS obligations. If an appraisal was required, the 90-day grace period will only apply if the appraisal was performed within the allotted 60 day time-frame.
To learn more about charitable substantiation and how you can meet your obligations to the IRS and your donors (or if you’ve made a charitable donation and want to make sure your responsibilities are met in an effort to claim the deduction on your tax return), email Rea & Associates. A member of our nonprofit services team will be happy to assist you.
By Tina Hess (Millersburg office)