Substantiation rules for charitable gifts.

• Author: Krumwiede, Tim

EXECUTIVE SUMMARY

* Under the PPA '06, taxpayers must keep specific written records, such as a bank record or receipt, for all cash donations.

* The substantiation rules for property donations depend on the amount given.

* Under the AJCA changes and IRS guidance, special rules apply to vehicles if the deduction exceeds $500.

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The charitable contribution substantiation rules have become increasingly detailed and more complex in recent years. This article provides an overview of the current rules for cash, property and vehicle donations.

Sec. 170 allows taxpayers a deduction for contributions made to charitable organizations. Over recent years, the extent and complexity of the substantiation requirements for such deductions has increased. For example, the American Jobs Creation Act of 2004 (AJCA) added substantiation and valuation requirements that apply specifically to vehicles. Previously, the Revenue Reconciliation Act of 1993 increased the substantiation requirements for charitable contributions in general. In this article, the current substantiation requirements for charitable contributions, including cash, property and vehicle donations, are discussed.

Cash Contributions

For all cash contributions, including those by check, credit card or other monetary instrument, taxpayers should maintain records of the amount, name of the charitable organization and date of the donation.

PPA '06

Pension Protection Act of 2006 (PPA '06) Section 1217(a) modified the substantiation provisions for cash contributions. In particular, Sec. 170(f)(17) provides tougher substantiation provisions for cash contributions. This section provides that cash contributions are deductible only if the donor maintains either a bank record or a written communication from the donee showing the organization's name, and the contribution date and amount. Other written records, such as the taxpayer's diary or log, would not be sufficient. This new provision effectively toughens the substantiation requirements for the small contributions discussed below and is effective for tax years beginning after Aug. 17, 2006.

Less Than $250

According to Regs. Sec. 1.170A-13(a), proper substantiation for cash contributions of less than $250 includes a cancelled check or any of the following:

* A receipt (including a letter or other communication) from the donee charitable organization, showing the name of the donee, the date and the contribution amount.

* Other reliable written records showing the donee's name, the date and the amount. The burden of proof is on the taxpayer to establish reliability. Regs. Sec. 1.170A-13(a)(2)(i)(B) provides that a contemporaneous diary entry stating the amount, date and name of the donee organization made by a taxpayer who regularly makes such entries would generally be considered reliable.

* For small contributions, any written or other evidence received from the donee organization (including an emblem, button or other token traditionally associated with the organization).

IRS Pub. 526, Charitable Contributions, provides that any of the following account statements are acceptable substantiation, as long as they are legible:

* If payment was by check, the check number, amount, date posted and to whom paid.

* For an electronic funds transfer, the amount, date posted and to whom paid.

* If payment was by credit card, the amount, transaction date and to whom paid.

$250 or More

Special provisions apply when substantiating a cash contribution of $250 or more. According to Sec. 170(f)(8), there must be a contemporaneous written acknowledgment of the contribution by the donee organization, containing the following information:

* The amount of cash contributed.

* Whether the organization provided any goods or services in consideration (in whole or part) for the cash contributed.

* A description and good-faith estimate of the value of any goods or services provided by the donee organization, or if such goods or services consisted solely of intangible religious benefits, a statement to that effect.

Taxpayers should obtain the acknowledgment on or before the earlier of the date the tax return is filed for the year of the contribution or the due date (including extensions) for filing the tax return.

In most cases, taxpayers who make charitable contributions by way of payroll deductions do not need an acknowledgment from the donee organization. However, if $250 or more is deducted from a single paycheck, Sec. 170(f)(8)'s contemporaneous-written-acknowledgment requirement applies. Regs. Sec. 1.170A-13(f)(11) provides that the donor meets this requirement with:

* A pay stub, Form W-2 or other document furnished by the employer that sets forth the amount withheld for the purpose of payment to a donee organization.

* A pledge card or other document prepared by, or at the direction of, the donee organization. The card or document should include a statement to the effect that the donee does not provide goods or services in whole or partial consideration for any contribution.

As can be seen, the substantiation requirements for contributions of $250 or more are more cumbersome than those for contributions of less than $250. What happens when multiple contributions, each below $250, are made to the same charity, if their combined total exceeds $250? According to Kegs. Sec. 1.170A-13(f)(1), separate contributions to the same charity, each less than $250, are not subject to Sec. 170(f)(8)(A)'s provisions, even though the total contribution may exceed $250. Presumably, multiple checks written to the same organization on the same date should be considered as one donation for purposes of determining whether the $250 threshold is met. (1)

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