How you document your charitable donations matters to the IRS
by Mandy Hicks
By Nathan Vinson, Attorney
English, Lucas, Priest and Owsley, LLP
Almost everyone makes charitable donations of some kind, and many of us expect to deduct the value of those donations from our income when our taxes are being prepared. While it’s not a primary motivator for most who give to charity, it certainly helps spur some giving and motivates some to meet charitable obligations prior to the end of the calendar year.
Here are a few tax rules to keep in mind when making charitable donations of property (i.e. noncash donations), as federal tax law and regulations require certain documentation of gifts depending on the value of the gifts. In tax parlance, these rules are called “substantiation” requirements.
For gifts under $250, minimal documentation is required to claim a tax deduction. While it is generally required that the taxpayer obtain a receipt from the charitable organization, the taxpayer is excused from doing so if getting a receipt is “impractical.”
An example that the tax regulations use is dropping off property (i.e. clothing) at a charity’s unattended drop site (i.e. a Goodwill drop box after store hours). In that instance, taxpayers are required to retain in their own records (but not submit to the IRS) documentation containing:
- the name and address of the charity;
- the date and location of the donation;
- a description of the property, including its value;
- the fair market value of the property contributed and the method used to determine the fair market value; and
- possibly other documentation.
As you can see, it may just be simpler to get the receipt!
For individual donations of property having a value of $250 or more, you’ll need to be sure you further comply with the so-called substantiation requirements. Here, the taxpayer must obtain from the charity what is known as a “contemporaneous written acknowledgement” (or a “CWA” for us tax geeks), which is basically a receipt on steroids. This requirement is a real foot-fault for taxpayers, because the CWA must contain specific information, which includes:
- a description (but not necessarily the value) of any property other than cash contributed and the amount of cash contributed, if any;
- whether the charity provided any goods or services in consideration, in whole or in part, for any cash or other property contributed; and
- if the charity provides any goods or services, a description and good-faith estimate of the value of the goods or services.
As you can see, the requirements for you to claim a charitable deduction are mounting up. Note that there are further requirements when the charity provides what the tax regulations call “intangible religious benefits,” but we won’t make this any more complicated than it already is.
So far, we’ve only covered two “tiers” of gifts of property. There are even further requirements when individual or aggregate donations hit the $500 mark. You must then complete and file with your return a “Form 8283.” At the $5,000 mark, in addition to all the other requirements above and having to file Form 8283, you are required to get a “qualified appraisal” of your donated property and file it with your tax return. You can just smell the audit opportunities here, and if you forget to file Form 8283 when required, your charitable donation deduction will be denied in full.
If you are audited and the IRS asks you for substantiation of your donation, you can expect to be asked for different varieties of the documentation described above, depending on the value of your donation. We’ve walked clients through this process previously. It’s not much fun for anyone involved, and it’s extremely important to handle it with precision (thus, the reason to call upon us).
If the IRS decides to audit you, they may question the nature of your donation and its value. You may need the assistance of an attorney. However, it is much better (and is always cheaper) to be sure you have correctly “substantiated” your donation before you even make it. Whichever stage you find yourself in, if I can help, please contact me, Nathan Vinson, at ELPO at (270) 781-6500 or firstname.lastname@example.org.