Does your nonprofit organization receive contributions of $250 or more? Does your organization provide goods or services to donors who make contributions over $75? If so, you will need to know the substantiation and disclosure requirements for charitable contributions.
A donor can claim an income tax deduction only if proper recordkeeping is retained for any contribution of cash, check, or other monetary gift. In order for the donor to be able to claim a tax deduction, the donor must 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 showing the name of the charity, date of the contribution, and the amount of the contribution.
If the charitable contribution was made via payroll deduction, the donor may use either of the following documents as written communication from the charity:
- A pay stub, Form W-2, Wage and Tax Statement, or other employer-furnished documentation that shows the amount withheld and paid to the charitable organization.
- A pledge card prepared by or at the direction of the charitable organization.
A donor cannot claim an income tax deduction for any single contribution of $250 or more unless a contemporaneous, written acknowledgment of the contribution is received from the recipient organization. These rules also apply to a contribution of $250 or more in the form of unreimbursed expenses such as out-of-pocket transportation costs incurred in order to perform donated services for the organization.
Although it is the donor’s responsibility to obtain a written acknowledgment, a charitable organization can assist the donor by providing a timely, written statement containing the following information:
- Name and current address of the organization.
- Amount of the cash contribution.
- Description of a noncash contribution (but not the value).
- 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, provided by the organization in return for the contribution.
- Statement that goods or services, if any, provided by the organization in return for the contribution consisted entirely of intangible religious benefits (if that was the case).
The donor’s Social Security number or tax identification number should not be shown on the acknowledgment.
A separate acknowledgement may be provided for each single contribution of $250 or more, or one acknowledgment (i.e., annual summary) may be used to substantiate several single contributions of $250 or more. Since the IRS does not provide forms to acknowledge contributions, the organization can provide the donor a paper copy of the acknowledgement or send it electronically via email addressed to the donor.
Recipient organizations typically send written acknowledgements to donors no later than January 31 of the year following the donation.
The donor must receive the written acknowledgement by the earlier of the date the donor files the return for the year the contribution is made or the due date for filing the return, including extensions.
Goods and Services
Acknowledgement must describe goods or services an organization provides in exchange for any contribution of $250 or more. It must also 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. However, the following are important exceptions:
- Token Exception: Insubstantial goods or services provided by a charitable organization in exchange for contributions do not have to be described in the acknowledgement. For example, if an organization provides a donor a low-cost item such as a notepad with its name and/or logo in exchange for a donation, it does not have to be listed in the acknowledgment. For 2017, a low-cost article cannot exceed $10.70.
- Membership Benefits Exception: An annual membership benefit is considered to be insubstantial if it is provided in exchange for an annual payment of $75 or less and consists of annual recurring rights or 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. The acknowledgment can simply state the organization provided intangible religious benefits to the contributor.
Examples of Written Acknowledgments
- “Thank you for your cash donation of $600 that (organization’s name) received on November 20, 2017. No goods or services were provided in exchange for your contribution.”
- “Thank you for your cash contribution of $500 that (organization’s name) received on November 27, 2017. In exchange for your contribution, you received a book with an estimated fair market value of $50.”
An organization is required to provide a written disclosure statement to a donor who makes a payment exceeding $75 that is partly a contribution and partly for goods and services provided by the organization. This is a common situation when tickets are purchased bought for a fund-raising event. If an individual purchases multiple tickets, it is the aggregated payment that is evaluated for exceeding $75 not the individual ticket price.
A $10 penalty per contribution (not to exceed $5,000 per fund-raising event or mailing) will be assessed on charities that do not meet the written disclosure requirement. The organization may avoid the penalty if it can show reasonable cause for its failure to meet the requirements.
For more details and the full text of Publication 1771, please visit this page. http://www.irs.gov/pub/irs-pdf/p1771.pdf
Website Charitable Solicitations
If an organization solicits contributions on its website, it may need to check where its donors reside to determine if there is a need to register as a charity in new states. Generally, registration is required in a particular state in the following scenarios (utilizing the Charleston Principles):
- The charity specifically targets a person in a particular state, such as sending an email to a person that the sender knew or should have known resided in a state or specifically requesting “people in “X state” should donate to this cause,” or
- The charity engages in passive solicitation (for example, uses a “donate now” button), but receives “substantial” or “repeated and ongoing” contributions from residents of a particular state. Therefore, if using a “donate now” button, or other passive Internet solicitation, it is generally recommended that the organization register in states in which the organization has a physical presence—such as where the principal office is located, and then after the donate now button is active, to the extent possible, the organization access whether a substantial number of donations are being received from certain other states. Although the Charleston Principles provide useful guidance, once an organization uses an online functionality for donation, it is likely that it will trigger registration requirements in all 40 states. This is because, even if the organization receives only one donation in a state, there is almost always some form of follow-up via email or letter, and that will be deemed to target a resident of that state and require registration.
Form 8283 – Noncash Charitable Contributions
For noncash donations over $5,000 (i.e., artwork), the donor must attach/include Form 8283 to or with their income tax return to support the charitable deduction. The tax-exempt organization must sign Part IV of Section B, Form 8283, unless publicly traded securities are donated. The person who signs for the tax-exempt organization must be an official authorized to sign the tax-exempt organization’s tax or information returns, or a person specifically authorized to sign by that official. The signature does not represent concurrence in the appraised value of the contributed property. A signed acknowledgement represents receipt of the property described on Form 8283 on the date specified on the form. The signature also indicates knowledge of the information reporting requirements on dispositions as discussed below. A copy of Form 8283 must be given to the tax-exempt organization.
If the value of the donated property by any individual or married couple exceeds $5,000, the donor must get a qualified appraisal for contributions of property (other than money or publicly traded securities). The tax-exempt organization is not a qualified appraiser for valuing the donated property. For more information, please refer to Publication 561, Determining the Value of Donated Property, found at http://www.irs.gov/pub/irs-pdf/p561.pdf.
Form 8282 – Donee Information Return (Sale, Exchange, or Other Disposition of Donated Property)
If an organization receives property (other than money or publicly traded securities) and if within three years decides to sell, exchange, or dispose of the property, the organization must file Form 8283, Donee Information Return. However, an organization is not required to file Form 8282 if the property is:
- Valued at $500 or less
- Distributed for charitable purposes
Form 8282 must be filed within 125 days after the disposition. A copy of Form 8282 must be given to the previous donor. If the organization fails to file the return by the due date, fails to include all the information required to be shown on the filed form, or includes incorrect information on the filed return, a penalty of $50 per form may apply. Other penalties may also apply for fraudulent identification of tax-exempt use property.
If you have any questions, please contact Terri Rexrode or your relationship manager.