Contributors to your charity seeking a federal income tax charitable contribution deduction must produce, if asked, a written receipt from the charity if a single contribution’s value is $250 or more.
Strictly speaking, the burden of compliance with the $250 or more rule falls on the donor. In reality, the burden and administrative costs fall on the charity, not the donor.
The IRS can fine a charity that deliberately issues a false acknowledgement to a contributor. The fine is up to $1,000 if the donor is an individual and $10,000 if the donor is a corporation.
A donor will not be allowed a charitable deduction for donations of $250 or more unless the donor has a receipt from your charity. This applies to any type of donation. For a single donation of $250 or more made by check, the cancelled check is not adequate substantiation.
If a donor makes multiple contributions of $250 or more to one charity, one acknowledgment that reflects the total amount of the donor’s contributions to the charity for the year is sufficient. In other words, the charity can total all of the contributions for a donor and only show the total amount on the receipt.
- Information to be included in the receipt. The following information must be included in the gift receipt:
- the donor’s name,
- if cash, the amount of cash contributed,
- if property, a description, but not the value, of the property,
- a statement explaining whether the church provided any goods or services to the donor in exchange for the contribution,
- if goods or services were provided to the donor, a description and good-faith estimate of their value and a statement that the donor’s charitable deduction is limited to the amount of the payment in excess of the value of the goods and services provided, and if services were provided consisting solely of intangible religious benefits, a statement to that effect,
- the date the donation was made (except for out-of-pocket expenses, see below), and,
- the date the receipt was issued.
- When receipts should be issued. Donors must obtain their receipts no later than the earlier of the due date, plus any extension, of their income tax returns or the date the return is filed. If a donor receives the receipt after this date, the gift does not qualify for a contribution deduction even on an amended return.
If your charity is issuing receipts on an annual basis, you should try to get them to your donors by at least January 31 each year and earlier in January if possible. This will assist your donors in gathering the necessary data for tax return preparation.
- Frequency of issuing receipts. The receipts or acknowledgements can be issued gift-by-gift, monthly, quarterly, annually, or any other frequency. For ease of administration and clear communication with donors, many charities provide a receipt for all gifts, whether over or under $250.
- Form of receipts. No specific design of the receipt is required. The IRS has not issued any sample receipts to follow.
The receipt can be a letter, a postcard, or a computer-generated form. It does not have to include the donor’s social security number or other taxpayer identification number.
- Separate gifts of less than $250. If a donor makes separate gifts during a calendar year of less than $250, there is no receipting requirement since each gift is a separate contribution. The donor’s cancelled check will provide sufficient substantiation. However, most charities receipt all gifts with no distinction between the gifts under or over $250.
- Donations payable to another charity. A church member may place a check in the offering plate of $250 or more payable to a mission organization designed for the support of a particular missionary serving with the mission. In this instance, no receipting is required by your church. Since the check was payable to the mission agency, that entity will need to issue the acknowledgment to entitle the donor to claim the gift as a charitable contribution.
- Donations in support of a missionary. Donations may be received, payable to your charity, for the support of a particular missionary. These gifts may qualify as a charitable contribution if the charity exercises sufficient discretion and control over the gift. If so, the charity should include the amounts in acknowledgments issued to donors. Then, the funds should be remitted as a gift or a grant to the missionary-sending organization for their disbursement in relation to the individual missionary.
- Donor’s out-of-pocket expenses. You may have volunteers that incur out-of-pocket expenses on behalf of your charity. Substantiation from your charity is required if a volunteer claims a deduction for unreimbursed expenses of $250 or more. However, the IRS acknowledges that the charity may be unaware of the details of the expenses or the dates on which they were incurred. Therefore, the charity must substantiate only types of services performed by the volunteer.
- Individuals. Gifts made to poor or needy individuals ordinarily do not qualify as charitable contributions. Gifts made personally to employees of a charity are not charitable contributions.
- Foreign organizations. Donations must be made to domestic organizations to qualify for a charitable deduction.
Example 1: A gift made directly to a missionary group organized and operating in Israel does not qualify for a charitable deduction.
Example 2: A gift to a U.S.-based missionary organization with a designation that the funds be used for mission work in China may qualify for a charitable deduction.
- Contingencies. If a contribution will not be effective until the occurrence of a certain event, an income tax charitable deduction generally is not allowable until the occurrence of the event.
Example: A donor makes a gift to a college to fund a new education program that the college does not presently offer and is not contemplating. The donation would not be deductible until the college agrees to the conditions of the gift.
- Charitable remainders in personal residences and farms. The charitable gift regulations are silent on the substantiation rules for remainder interests in personal residences and farms. It should be assumed that the $250 substantiation rules apply to those gifts unless the IRS provides other guidance.
- Charitable trusts. The $250 substantiation rules do not apply to charitable remainder trusts and charitable lead trusts.
- Gift annuities. When the gift portion of a gift annuity or a deferred payment gift annuity is $250 or more, a donor must have an acknowledgment from the charity stating whether any goods or services—in addition to the annuity—were provided to the donor. If no goods or services were provided, the acknowledgment must so state. The acknowledgment need not include a good faith estimate of the annuity’s value.
- Pooled income funds. The substantiation rules apply to pooled income funds. To deduct a gift of a remainder interest of $250 or more, a donor must have an acknowledgment from the charity.
Reproduced by permission from
The Zondervan Church and Nonprofit Tax & Financial Guide,
Dan Busby, CPA, author
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