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August 28th, 2018
IRS Final Regulations Clarify Charitable Contribution Substantiation Requirements
Tax deductions for charitable contributions require the satisfaction of certain substantiation requirements. Generally, any charitable gift of money must be evidenced by either a bank record (a bank statement, electronic fund transfer receipt, cancelled check or credit card statement) or a written communication from the donee organization showing the name of the donee and the date and amount of the gift. The following additional requirements apply, however, to the following gifts:
- For a gift (cash or property) of $250 or more, the donor must obtain a contemporaneous written acknowledgment of the gift by the donee organization (a cancelled check or other evidence of payment will not suffice) that contains (i) the amount of cash contributed (or in the case of property, a description of the property contributed), and (ii) a statement of whether any goods or services were provided in exchange for the gift and, if goods or services were provided, a good faith estimate of the value of such goods or services.
- In addition to a contemporaneous written acknowledgment from the donee organization, a gift of property (i.e., non-cash) valued at $500 - $5,000 generally requires that the donor describe the property on IRS Form 8283 and file the form with the donor's tax return.
- With respect to a gift of property valued at $5,000 - $500,000, the donor must obtain, in addition to a contemporaneous written acknowledgment from the donee organization, an appraisal meeting specific IRS requirements (a "qualified appraisal") and file with the donor's tax return an appraisal summary (using IRS Form 8283).
- For a gift of property valued at more than $500,000, the qualified appraisal also must be attached to the donor's tax return.
The IRS recently published final regulations that generally adopt (with clarifications) earlier proposed regulations relating to the substantiation and reporting requirements for charitable gifts. As now finalized, the following provisions of these regulations may be of particular interest:
- A blank pledge card provided by a donee organization and completed by a donor will not constitute adequate substantiation for a gift of cash.
- For a cash contribution of less than $250, a written confirmation from the donee organization is not required (the donor may rely on a bank record to substantiate the contribution), but the substantiation requirement can be satisfied by an email from the donee organization setting forth the donor's name and date and amount of the contribution. Generally, small property (i.e., non-cash) contributions require a contemporaneous written acknowledgement from the donee organization in order to substantiate the deduction.
- Donee organizations should be aware that donors of property valued at more than $5,000 will ask such donee organizations to complete (by providing certain information regarding the intended use of the property) and sign Section B, Part IV, of the IRS Form 8283 that the donors must file with their tax returns in order to substantiate their contributions.
- Even if Section B, Part IV, of IRS Form 8283 has been completed and signed by a donee organization as an acknowledgment of a gift of property valued at more than $5,000, it will not satisfy the contemporaneous written acknowledgment requirement because it contains only some of the information required to satisfy that requirement. Accordingly, a donor will also need to receive a contemporaneous written acknowledgment of the gift from the donee organization.
- With regard to the "qualified appraisal" requirement, the IRS regulations proposed in 2008 provided that an appraiser will be deemed to have the requisite verifiable education and experience in valuing the type of property subject to appraisal if the appraiser has "successfully completed (for example, received a passing grade on a final examination) professional or college-level coursework" in valuing that type of property and has two or more years of experience in valuing that type of property. The new IRS final regulations clarify that evidence other than a passing grade on a final examination may be sufficient to demonstrate successful completion of professional or college-level coursework, but mere attendance at a training event without evidence of successful completion of coursework will not be sufficient.
- The IRS final regulations clarify that in addition to professional or college-level educational institutions, appraisal organizations or employer educational programs, the requisite coursework may be successfully completed at a recognized professional trade organization.
In general, the IRS final regulations apply to charitable gifts made after July 30, 2018. A transitional rule postponing the effective date of certain rules relating to the education and experience requirements for qualified appraisers is provided in order to provide appraisers with a reasonable amount of time to meet the new education and experience requirements. These rules apply only to contributions made after December 31, 2018.
If you have questions about the charitable contribution substantiation and reporting rules summarized above or any other issues related to charitable contribution deductions, please contact Jeffrey M. Marks at (212) 826 5536 or firstname.lastname@example.org, Bernard C. Topper at (212) 826 5547 or email@example.com, or any other member of the Frankfurt Kurnit Tax Group or the Frankfurt Kurnit Charitable Organizations Group.
Other Regulatory Alerts
Gift Cards in Advertising Promotions and New York Sales Tax
Does the value of a gift card offered as part of an advertising promotion reduce the taxable receipts from a sale for New York sales tax purposes? It is an important question for advertisers. Under-collection of sales tax can leave you liable for the underpayment, while over-collection can serve as the basis for a class action. Read more.
November 20 2018
Claiming the New 20% Pass-Thru Business Deduction—IRS Proposed Regulations Provide Guidance on Meaning of “Specified Service Business”
Background. On August 8, 2018, the IRS issued proposed (not final, but taxpayers can rely on them currently) regulations (the "Regulations") intepreting the 2017 Tax Cuts & Jobs Act's new rule under which an individual taxpayer may deduct up to 20% of his income from a domestic business operated as a sole proprietorship or through a partnership (including an LLC taxed as a partnership) or S corporation (a "pass-thru business"). With this 20% deduction, the effective federal marginal tax rate on an individual taxpayer's qualified business income (assuming he is otherwise subject to the maximum 37% tax rate) is 29.6%. The deduction is available through 2025. Read more.
August 15 2018
Tax Alert for Tax-Exempt Organizations
The Tax Cuts and Job Act of 2017, which was enacted on December 22, 2017 (the "Act"), contains several provisions that impact tax-exempt organizations ("EOs"). Some of these provisions impose new or additional taxes that may adversely affect an EO's ability to accomplish its exempt purposes. Read more.
January 12 2018