Individuals seeking a federal income tax charitable contribution deduction must produce, upon request, a written receipt from the ministry if a single contribution’s value is $250 or more.

The IRS can fine a ministry for deliberately issuing a false acknowledgment to a contributor. The fine is up to $1,000 if the giver is an individual and $10,000 if the giver is a corporation.

A giver will not be allowed a charitable deduction for donations of $250 or more unless the giver has a receipt from the ministry. 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. However, a cancelled check is adequate substantiation only for single gifts of less than $250.

A giver must have a gift acknowledgment to deduct any contributions made by currency.

Information to be included in the acknowledgment. The following information must be included in the gift acknowledgment:

• the giver’s name
• the date the donation was made
• the date the acknowledgment was issued
• if cash, the amount of cash contributed
• if property, a description but not the value of the property ?(if the gift is an auto, boat, or airplane, the church must generally provide Form 1098-C to the giver)
• if goods or services were provided to the giver, a description and good-faith estimate of the goods or services’ value and a statement that the giver’s charitable deduction is limited to the amount of the payment in excess of that value, and if services were provided consisting solely of intangible religious benefits, a statement to that effect
• If no goods or services were exchanged, other than intangible religious benefits, a statement that nothing was exchanged  

When acknowledgments should be issued. Givers must obtain their acknowledgments no later than the earlier of the due date, plus any extension, of their income tax returns or the date the return is filed (whichever is earlier). If a giver receives the acknowledgment after this date, the gift does not qualify for a contribution deduction, even on an amended return.

If a ministry is issuing receipts on an annual basis, it should try to get them to its givers by at least January 31 each year (earlier if possible). This will assist givers in gathering the necessary data for tax return preparation.

Frequency of issuing acknowledgments. The acknowledgments can be issued gift-by-gift, monthly, quarterly, annually, or any other frequency. For ease of administration and clear communication with givers, many ministries provide an acknowledgment for all gifts, whether over or under $250.

Form of acknowledgments. No specific design of the acknowledgment is required. The IRS has not issued any sample acknowledgments to follow.

The acknowledgment can be a letter, a postcard, or a computer-generated form. It does not have to include the giver’s social security number or other taxpayer identification number. A receipt can also be provided electronically, such as via an email addressed to the giver.

Separate gifts of less than $250. If a giver makes separate gifts during a calendar year of less than $250, there is no acknowledgment requirement since each gift is a separate contribution. The giver’s cancelled check will provide sufficient substantiation. However, most ministries acknowledge all gifts with no distinction based on amount.

Donations payable to another ministry. A church member may place a check in the offering plate for $250 or more payable to a mission organization designated for the support of a particular missionary serving with the mission. In this instance, no receipting is required by the church. Since the check was payable to the mission agency, that entity will need to issue the acknowledgment to entitle the giver to claim the gift as a charitable contribution.

Request to send an acknowledgment to a taxpayer other than the giver. A giver may ask a ministry to issue a gift acknowledgment to a taxpayer other than the one making the gift. Issuing a charitable contribution acknowledgment to anyone other than the giver is inappropriate. Under U.S. tax law, the taxpayer (individual, corporation, trust, etc.) that makes the payment is generally the taxpayer entitled to an expense or charitable deduction.

Individuals. Gifts made to poor or needy individuals ordinarily do not qualify as charitable contributions. Gifts made personally to employees of a ministry are not charitable contributions.

Foreign organizations. Donations must be made to domestic 501(c)(3) 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, a charitable deduction generally is not allowable until the occurrence of the event.

Example:  A giver 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 for the gift.

Contributed services and use of facilities. Ministries often receive contributed services from volunteers to help accomplish their mission. Additionally, a ministry may be given use of a building or other facilities either at no cost or at a substantially reduced cost.

Donations of services and use of facilities do not qualify for the charitable contribution deduction. Therefore, givers of services and facilities use will not receive a tax benefit for their contributions.

Designated gifts for employees. When a giver places many restrictions on a gift, it often does not qualify as a charitable deduction. This is especially true when the giver wants the gift to benefit a certain individual.

Example: A giver may donate a car, a personal computer, money, or some other asset, and specify that the donation be given to an employee of the ministry. The giver expects a charitable contribution receipt and wants the employee to have the gift without incurring any taxes on the gift. Should the ministry accept the gift? What are the consequences of such a gift?

Before accepting such a gift, the ministry must determine if it can exercise adequate control over the gift, and if the specified use of the gift would result in appropriate compensation for the services rendered to the ministry. If the ministry feels that it can properly accept the gift, then the fair market value of the assets or amount of cash distributed to each staff person must be included on his or her Form W-2.

Gifts of securities. Ministries frequently receive contributions of investment securities. By donating stocks or bonds to a ministry, a giver is able to support the ministry, avoid paying capital gains taxes, and receive a charitable contribution deduction.

Timing of acknowledging contributed investments. A contribution of investment securities is completed upon the unconditional delivery of a properly endorsed investment certificate to a nonprofit or its agent. If the security is mailed and is received by the ministry or its agent in the ordinary course of the mail, the gift is effective on the date of mailing. If the giver delivers an investment certificate to the issuing corporation or to the donor’s broker for transfer to the name of the ministry, the contribution is not completed until the security is actually transferred on the corporation’s books.

Acknowledging contributed investments. When issuing an acknowledgment for investment donations, the acknowledgment should not reflect the fair market value of the gift, but it should only include the amount and types of securities received as well as the date(s) they were received.

Contributions of motor vehicles, boats, and airplanes. Where the claimed value of a vehicle donation exceeds $500, ministries are required to provide a contemporaneous written acknowledgment containing specific information to givers of motor vehicles, boats, and airplanes. Taxpayers are required to include a copy of the written acknowledgments with their tax returns in order to receive a deduction.

The ministry is also required to provide the information contained in the acknowledgment to the IRS. The information included in such acknowledgments as well as the meaning of contemporaneous depends on what the ministry does with the donated vehicle.

• Vehicle sold before use or improvement. If the donated car, boat, or airplane is sold before significant intervening use or material improvement of the vehicle by the ministry, the gross proceeds received by the ministry from the sale of the vehicle will be included on the written acknowledgment. Therefore, for donated vehicles sold before significant use or material improvement, the deductible amount is the gross proceeds received from the sale.
  
  To meet the significant use test, a ministry must actually use the vehicle to substantially further the ministry’s regularly conducted activities and the use must be significant. Whether a use is considered significant depends on the frequency and duration of use.
  
  Material improvement includes major repairs to a vehicle, or other improvements to the vehicle that improve the condition of the vehicle in a manner that significantly increases the vehicle’s value. Activities that are not considered a material improvement include cleaning the vehicle, minor repairs, and routine maintenance.

For vehicles sold before use or improvement, a written acknowledgment is considered contemporaneous if the ministry provides it within 30 days of the sale of the vehicle. The written acknowledgment provided by the ministry should include the following information:

• the name and taxpayer identification number of the giver;
• the vehicle identification number or similar number;
• certification that the vehicle was sold in an arm’s length transaction between unrelated parties;
• the gross proceeds from the sale;
• a statement that the deductible amount may not exceed the amount of such gross proceeds.

• Vehicle not sold before use or improvement. Ministries may plan to significantly use or materially improve a donated vehicle before or instead of selling the vehicle. In such circumstances, the written acknowledgment (written within 30 days of the contribution of the vehicle to be considered contemporaneous) should include the following information:
  • The name and taxpayer identification number of the giver;
  • the vehicle identification number or similar number;
  • certification of the intended use or material improvement of the vehicle and the intended duration of such use;
  • certification that the vehicle would not be transferred in exchange for money, other property, or services before completion of such use or improvement.

The deductible amount for contributed vehicles that will be used or improved by the charity is the private-party value of the vehicle, as determined by the giver.

• Vehicle gratuitously transferred to a needy individual. Contributions of vehicles, boats, or airplanes that are sold by the ministry that received the gift at a price significantly below fair market value (or gratuitously transferred to needy individuals in direct furtherance of the ministry’s charitable purpose) qualify for a charitable deduction at the private-party value of the property.
  
  For a vehicle that meets this definition, the gift acknowledgment also must contain a certification that the ministry will sell the qualified vehicle to a needy individual at a price significantly below fair market value (or, if applicable, that the ministry gratuitously will transfer the qualified vehicle to a needy individual) and that the sale (or transfer) will be in the direct furtherance of the ministry’s charitable purpose of relieving the poor and distressed or the underprivileged who are in need of a means of transportation.

Example:  On October 1, XXXX a giver contributes a vehicle to a qualified ministry. The ministry’s charitable purposes include helping needy individuals who are unemployed develop new job skills, finding job placements for these individuals, and providing transportation for those individuals who need a means of transportation to jobs in areas not served by public transportation. The ministry determines that, in direct furtherance of its charitable purpose, the ministry will sell the qualified vehicle at a price significantly below fair market value to a trainee who needs a means of transportation to a new workplace. On or before October 31, XXXX, the ministry provides an acknowledgment to the giver containing the giver’s name and taxpayer identification number, the vehicle identification number, a statement that the date of the contribution was October 1, XXXX, a certification that the ministry will sell the qualified vehicle to a needy individual at a price significantly below fair market value, and a certification that the sale is in direct furtherance of the ministry’s charitable purpose.
 

1. This sample receipt is based on the following assumptions:

   1. No goods or services were provided in exchange for the gifts other than intangible religious benefits.

   2. The acknowledgment is issued on a periodic or annual basis for all gifts whether over or under $250.

2. Acknowledgments should be numbered consecutively for control and accounting purposes.