Substantiation Requirements for Charitable Donations

The Tax Code and its regs impose substantiation requirements that become more rigorous as the items of donated property increase in value. The basic rules are summarized in brief, below:

Donations of money. A bank record or a written communication from the charity is required for every cash contribution.

Noncash donations worth less than $250. Separate contributions of less than $250 are not subject to the written acknowledgment requirement regardless of whether the sum of the contributions made by a taxpayer to a charity during a tax year equals $250 or more. The IRS website reminds taxpayers to retain a record of all items donated in kind, regardless of value.

In other words, Maxine Aaronson, attorney, Dallas, told CCH, a taxpayer may donate items worth $150 on one day and then donate $150 of items another day; and these values will not be aggregated for purposes of triggering the requirement to obtain a contemporaneous written acknowledgment from the charity. “However, the taxpayer is required to aggregate similar items of property donated in kind if the claim is a contribution for a class of item that exceeds $500,” Aaronson explained.

Noncash donations worth $250 or more. A taxpayer who contributes a single monetary donation or noncash items worth $250 or more to a tax-exempt organization must obtain a contemporaneous written acknowledgment from the organization. This must contain: the organization’s name, a description (but not the value) of noncash property contributed, and a description and good faith estimate of the value of goods or services, if any, that an organization provided in return for the contribution.

A written acknowledgment is considered contemporaneous if it is obtained by the taxpayer by the date on which the taxpayer timely files his or her original tax return –or the due date including extensions, whichever is earlier –for the year in which the contribution was made.

Noncash donations of $500 or more. Taxpayers who claim deductions for noncash gifts worth more than $500 must satisfy the contemporaneous written acknowledgment requirement and are also required to file Form 8283, Noncash Charitable Contributions, with their return.

In addition, for charitable contributions of noncash property in excess of $500 (other than publicly traded securities), the taxpayer must maintain additional reliable records that contain the manner of acquisition of the property, the date such property was acquired, and the cost basis of the property.

Noncash donations of $5,000 or more. All donations of noncash property with a value of $5,000 or more are subject to the additional requirement under Code Sec. 170(f)(11)(C) that the taxpayer must obtain a qualified appraisal and attach it to his tax return.

Motor vehicles. Special rules exist for donations of motor vehicles, boats and airplanes. Generally, if a taxpayer donates a qualified vehicle with a claimed fair market value of more than $500, the taxpayer can deduct the smaller of the gross proceeds from the sale of the vehicle by the organization or the vehicle’s fair market value on the date of the contribution. The taxpayer may claim the fair market value at the time of contribution in certain cases, for example if the qualified organization makes a significant intervening use of or material improvement to the vehicle before transferring it or if the qualified organization gives the vehicle, or sells it for a price well below fair market value, to a needy individual in furtherance of the organization’s charitable purpose.

Source: From a recent Tax Court decision, Smith, TC Memo. 2014-203, CCH Dec. 60,041(M), as provided by CCH Federal Tax Weekly