written by Aaron Henry
The IRS requires taxpayers to substantiate their charitable donations. Regardless of the type of donation, the substantiation rules must be followed. The rules are complex and have frequently caused problems for taxpayers who had good intentions but failed to satisfy the IRS’s requirements.
One way to understand the IRS’s requirements is to break them down by monetary amount and the type of donation.
- Contributions of cash, check, or other monetary gift (regardless of the amount) – Requirement: a taxpayer must maintain a bank record, payroll deduction records or a written communication from the organization containing the name of the organization, the date of the contribution and amount of the contribution.
- Contributions of cash or property equaling $250 or more – Requirement: the taxpayer must have a bank record, payroll deduction records or a written acknowledgment from the qualified organization showing the amount of the cash and a description of any property contributed, and whether the organization provided any goods or services in exchange for the gift.
- All noncash contributions for the year in excess of $500 – Requirement: the taxpayer must file Form 8283, Noncash Charitable Contributions, with the IRS.
- Donations valued at more than $5,000 – Requirement: generally require an appraisal by a qualified appraiser.
NOTE: The IRS also requires that donations of clothing and household items be in good used condition or better to be deductible. Special rules apply to donations of motor vehicles, boats and aircraft.
Tax Court sheds light
In April, the U.S. Tax Court issued an instructive decision (Kunkel, TC Memo. 2015-71) on the steps taxpayers must take to deduct a contribution to a charitable organization. The taxpayers in this case made a number of donations, some by cash and others of household items and clothing, but the court disallowed nearly all of the claimed deductions because the taxpayers failed to follow the rules.
In this case, the taxpayers reported donations of $5,000 in cash and $37,000 in noncash donations, for a total of $42,000 in charitable contributions. The noncash contributions were donations of books, clothing, furniture, and household items. The taxpayers told the IRS that they took the household items, clothing and books to charities in batches, which they claimed were worth less than $250 because they believed this eliminated the need to get receipts. Other times, one or more charities came to the taxpayers’ residence and picked up the household items (however, the taxpayers were not home at the time of the pickup and the charities left undated doorknob hangers as receipts).
The Tax Court reminded the taxpayers that for all contributions of $250 or more, a taxpayer generally must obtain a contemporaneous written acknowledgment from the charity. The court found that it was unlikely that the taxpayers had made their donations in batches worth less than $250. The court calculated that this would mean they had made these donations on 97 different occasions in one year. The court also found that the doorknob hangers were inadequate proof of their claimed donations. The doorknob hangers not specific to taxpayer, did not describe the property contributed, and were not contemporaneous written acknowledgments.
This article provides an in-depth overview of the IRS’s substantiation requirements for donations to charity. If you have any questions about the substantiation or other requirements for a gift you are making to a charity, please contact our office at 417-881-0145 for more details.