By Scott Shay, CPA | Tax Associate
Substantiation of Charitable Contributions
The IRS and Treasury have recently finalized a set of regulations regarding the substantiation of charitable contributions nearly a decade after they were initially proposed. Generally speaking, the new regulations contain stricter guidelines for substantiating charitable contributions, which are effective as of July 30, 2018.
While the new Tax Cuts and Jobs Act will increase the number of taxpayers who choose to take the standard deduction, these new regulations are important to note for any individuals who plan to itemize their deductions in the future, and are also relevant to partnerships and corporations that make charitable contributions.
Cash Contribution Recordkeeping Requirements
The new regulations impose a recordkeeping requirement for all cash contributions. Sec. 170 requires donors to maintain either a bank record or a written communication from the eligible donee to substantiate any cash contributions, regardless of amount. A “written communication” is defined as having the name of the donee organization, the date of the donation, and the dollar amount donated. A “cash contribution” is considered to be in the form of cash, check, or other monetary gift. Additionally, a “bank record” can include a statement from a financial institution, an EFT receipt, a canceled check, or a credit card statement (Sec. 1.170A-15(b)(2)). These new regulations are in addition to existing rules that require a contemporaneous written acknowledgement from the donee for any donation of $250 or more.
We anticipate that these new regulations will have the largest impact on the practice of issuing blank “pledge cards” Donee organizations commonly issue blank donation receipts to donors, but these (and other similar documents) will no longer be consider appropriate substantiation for cash contributions. The language in the new regulation dictates that any written communication be completed by the donee. Thus, blank pledge cards, which are completed by the donor, render them unsuitable for substantiation purposes. We recommend keeping bank records (as outlined above) for any cash contribution made after July 30, 2018 that have resulted in the receipt of a pledge card.
The finalized regulations under Sec. 1.170A-16 provide guidance for noncash contributions in a tiered manner, with more detailed documentation and stricter filing requirements needed for higher-valued donations. The following highlights substantiation for non cash contributions:
|Value of Donation||Substantiation and Filing Requirements|
|Under $250||Receipt from the donee or reliable records|
|$250 – $499||Contemporaneous written acknowledgement (as defined below)|
|$500 – 4,999||Contemporaneous written acknowledgement, completion of Form 8283 (Section A) with the return on which the deduction is taken|
|$5,000 – $499,999||Contemporaneous written acknowledgement, qualified appraisal, completion of Form 8283 (Section A or B) with the return on which the deduction is taken|
|Over $500,000||Contemporaneous written acknowledgement, qualified appraisal to be attached to the return on which the deduction is taken, completion of Form 8283 (Section A or B) with the return on which the deduction is taken|
A contemporaneous written acknowledgement is defined as a document containing:
(1) the amount of cash and a description (but not value) of any property other than cash contributed; (2) a statement of whether the donee organization provided any goods or services in consideration, in whole or in part, for any such cash or property; and (3) a description and good faith estimate of the value of any such goods or services or, if such goods or services consist solely of intangible religious benefits, a statement to that effect. (Sec. 170(f)(8)).
Redefining “Qualified Appraiser”
The language “qualified appraisal” has been used in past regulations as a requirement for any donated property for which a deduction in the amount of $5,000 or more is claimed, however, this appraisal is now only considered sufficient if conducted by a qualified appraiser as defined below…
(1) has earned an appraisal designation from a recognized professional appraiser organization or has otherwise met minimum education and experience requirements set forth in regulations prescribed by the Secretary, (2) regularly performs appraisals for which the individual receives compensation, and (3) meets such other requirements as may be prescribed by the Secretary in regulations or other guidance. (Sec. 170(f)(11)(E)(ii)).
Appraisers have been given time to work towards achieving these new standards, so these regulations only apply to property donations made on or after January 1, 2019.
These regulations contain guidance on substantiation of charitable contributions that should be followed closely. The amount of time it takes to comply with these recordkeeping requirements can save time, money, and frustration at tax time or upon an IRS examination.
The information contained within this article is provided for informational purposes only and is current as of the date published. Online readers are advised not to act upon this information without seeking the service of a professional accountant, as this article is not a substitute for obtaining accounting, tax, or financial advice from a professional accountant.