Bulletins

Substantiating Charitable Contributions

Dear clients and friends,

One of the most popular tax deductions for individuals is the one allowed for donations to charitable organizations�from the local church or synagogue to the Red Cross and various other national organizations. Unfortunately, over the last several decades, this deduction has also been among the most abused. Thus, perhaps it is not surprising that Congress has responded to the problem by regularly enacting more rules around documenting donations.

What we�re left with is a confusing array of rules that you have to comply with in order to claim a deduction. A recent court case illustrates how easy it is to run afoul of the documentation requirements.

In the case, the taxpayers donated around $22,000 to their church during the tax year. Although the donations were made by check and the taxpayer provided canceled checks to document the gift, the IRS disallowed the deduction 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 include all of the following:

1. The name and address of the charity.

2. The date of the contribution.

3. The amount of cash and/or a description (but not an estimate of value) of any property contributed.

4. A list of 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 had a receipt from their church, but it did not contain the required statement regarding whether goods or services were provided. They tried to correct this omission by getting a new receipt from their church after the IRS challenged the deduction. By then, of course, it was too late.

While this article has given you just a glimpse at the substantiation rules for charitable donations, the rules can get much more complicated, especially when you make charitable donations of property other than cash. We�d be happy to discuss with you any of the requirements for specific types of donations. Please feel free to call us as the need arises.

Very truly yours,

Daniel A. Kosmatka ,CPA, PFS, CFF
Dennis W. Donnelly, CPA, PFS
Michael R. Gohde, CPA, PFS

TYPE OF GIFT

AMOUNT GIVEN IN A SINGLE DONATION a

Less than $250

$250 to $500

Over $500 to $5,000

Over $5,000 to $10,000 b

Over $10,000

1. Cash

Bank record or written receipt from charity showing charity'S name, amount. and date of donation

Acknowledgment from the charity C

Same as preceding column

Same as preceding column

Same as preceding column

2. Payroll deduction

Paystub. W-2. or other employer statement showing amount withheld, plus pledge card or other document from charity showing its name

Paystub, W-2, or other employer statement showing amount withheld, plus pledge card or an acknowledgment from the charity d

Same as preceding column

Same as preceding column

Same as preceding column

3. Out-or-pocket expenses while serving as a volunteer

Canceled checks. receipts. or other records showing date, amount. description, and reason for expenditure

Same as preceding column. plus a proper acknowledgment from the charity e

Same as preceding column

Same as preceding column

Same as preceding column

4. Noncash:

a. PubUcly traded stock

A receipt with the charity's name and the date, location, and description of the donation or reliable written records r.l

Acknowledgment from the charity C Written records r,J

Same as preceding column. plus written records r, k Form 8283, Section A

Same as preceding column

Same as preceding column

b. Nonpublicly traded stock

A receipt with the charity's name and the date, location, and description of the donation or reliable written records r.l

Acknowledgment from the charity C Written records r.j

Same as preceding column, plus written records r. k Form 8283, Section A

Same as preceding column, except Section B of Form 8283

Same as preceding column, plus the donor must have a qualified appraisal prepared before the tax return is due I

..

TYPE OF GIFT

AMOUNT GIVEN IN A SINGLE DONATION�

Less than $250

$250 to $500

Over $500 to $5,000

Over $5,000 to $10,000

Over $10,000

c. Inventory or depreciable property donated by a C corporation for care of the ill, needy, or Infants

Written statement that the charity intends to comply with certain restrictions related to the donation h

Same as preceding column. plus a proper acknowledg-ment from the charity C Written records J

Same as preceding column

Same as preceding column I Form 8283. Section B

Same as preceding column

d. Artwork

A receipt with the charity's name. the date. location. and description of the donation or reliable written records

Acknowledgment from the charity C Written records

Same as preceding column Form 8283. Section A

Same as preceding column. except Section B of Form 8283. plus the donor must have a qualified appraisal prepared before the tax return is due

Same as preceding column. plus for individual objects valued at $20.000 or more, attach the appraisal to the return and keep a photograph of sufficient size and quality to fully show the object

e. Vehicles, boats, and airplanes

� Charity sells without significant use or material improvement

Receipt or reliable written records

Form 1098-C or other acknowledgment from the charity

Written records

Form 1098-C or other acknowledgment with same information (attached to tax return)

Reliable written records Form 8283. Section A

Same as preceding column. except Section B of Form 8283

Same as preceding column

� Charity gives or sells at a significantly discounted price to needy individual in a qualified transfer

Receipt or reliable written records

Form 1098-C or other acknowledgment from the charity

Written records

Form 1098-C or other acknowledgment with same information (attached to tax return) r

Reliable written records

Form 8283. Section A

Same as preceding column. except Section B of Form 8283, plus a qualified appraisal.

Same as preceding column

� Significant use or material improvement by charity

Receipt or reliable written records

Form 1098-C or other acknowledgment from the charity

Written records

Form 1098-C or other acknowledgment with same information (attached to tax return)

Reliable written records

Form 8283. Section A

Same as preceding column. except Section B of Form 8283, plus a qualified appraisal.

Same as preceding column

..

TYPE OF GIFT

AMOUNT GIVEN IN A SINGLE DONATION

Less than $250

$250 to $500

Over $500 to $5,000

Over $5,000 to $10,000

Over $10,000

f. All other noncash donations

Receipt or reliable written

records

Acknowledgment from the charity C

Written records

Same as preceding column, plus written records.

Form 8283, Section A

charity C

Same as preceding column, except Section B of Form 8283. plus a qualified appraisal

Same as preceding column

g. Patents and other intellectual property

Donor�s statement of intent at time of contribution

A receipt with the charity�s name, the date, location. And description of the donation or reliable written records

Acknowledgment from the charity

Written records

Same as preceding column

Donor must provide to the charity a statement identifying:

� his or her name. address. and TIN;

� a detailed description of the intellectual property;

� the date of the contribution; and

� the donor's intent to treat the contribution as a qualified intellectual property donation.

Form 8283. Section A Same as preceding column

Same as preceding column, except Section B of Form 8283

Same as preceding column

� Donee's annual acknowledge-ment of income generated

A receipt with the charity'S name, the date. location, and description of the donation or bank records (canceled check)

Acknowledgment from the charity

Written records

Same as preceding column

The done must report on Form 8899:

� the donor�s name. address. and TIN;

� a detailed description of the intellectual property;

� the date of the contribution; and

� the amount of the net income allocable to the donated property.

Form 8283. Section A

Same as preceding column, except Section B of Form 8283

Same as preceding column