November 19, 2017
 
A Primer on IRS Rules for Charitable Giving

When soliciting or acknowledging donations to your nonprofit, it's important to understand substantiation and disclosure requirements for contributions of $250 or more, or if you provide goods or services to donors who make contributions over $75.

Record Keeping Rules

A donor can’t claim a tax deduction for any contribution of cash, a check, or other monetary gift unless they maintain a record of the contribution in the form of either a canceled check or other bank record, or a receipt or other written communication from the charity. The written communication from the charity must have the name of the charity, date the contribution was made, and the amount of the contribution on it.

If the contribution was made via payroll deduction, the donor can use either a pay stub, W-2 Form, Wage and Tax statement, or other form of employer-furnished document that shows the amount withheld and paid to the organization as written communication from the charity. A pledge card prepared by or at the direction of the organization will also suffice.

Written Acknowledgment

A donor can’t claim a tax deduction for any single contribution of $250 or more unless they obtain a contemporaneous, written acknowledgment of the contribution from the recipient organization. Although it’s the donor’s responsibility to obtain a written acknowledgment, a charitable organization can provide a timely, written statement containing:
  • The organization’s name
  • Contribution amount
  • Description of non-cash contribution
  • Statement that no goods or services were provided by the organization in return for the contribution, if that was the case
  • Description and good faith estimate of the value of goods or services, if any, that an organization provided in return for the contribution
  • Statement that goods or services, if any, that an organization provided in return for the contribution consisted entirely of intangible religious benefits if that was the case
A separate acknowledgment may be provided for each single contribution of $250 or more, or one acknowledgment such as an annual summary can be used to substantiate several single contributions of $250 or more. Since there are no forms for the acknowledgment provided by the IRS, an organization can provide either a paper copy of the acknowledgment to the donor, or it can provide the acknowledgment electronically, via email addressed to the donor.

Goods and Services

The acknowledgment must describe goods or services an organization provides in exchange for a contribution of $250 or more. Also, it needs to provide a good faith estimate of the value of such goods or services because a donor must generally reduce the amount of the contribution deduction by the fair market value of the goods and services provided by the organization. Goods or services include cash, property, services, benefits or privileges. There are, however, important exceptions.

Token Exception – Insubstantial goods or services a charitable organization provides in exchange for contributions do not have to be described in the acknowledgment. For example, if an organization gives a donor a low cost article such as a poster or a pen bearing its name and/or logo in exchange for a donation; the token does not have to be described in the acknowledgment.

Membership Benefits Exception – An annual membership benefit is also considered to be insubstantial as long as it’s provided in exchange for an annual payment of $75 or less and consists of annual recurring rights and privileges.

Intangible Religious Benefits Exception – If a religious organization provides only “intangible religious benefits” to a contributor, the acknowledgment does not need to describe or value those benefits. It can simply state that the organization provided intangible religious benefits to the contributor.

Written Disclosure

It is required that an organization provide a written disclosure statement to a donor who makes a payment that exceeds $75 in part as a contribution and partly for goods and services provided to them by the organization.

A penalty of $10 per contribution (not to exceed $5,000 per fund-raising event or mailing) is imposed on charities that don’t meet the written disclosure requirement. An organization can avoid the penalty if it can show that failure to meet the requirements was due to a reasonable cause.

This article is adapted from an article published in Advice from the Pros, a newsletter produced by Braver in Needham. For more, click here.

October 2011

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