For the past decade, taxpayers have been advised to follow proposed regulations regarding substantiation and reporting requirements for cash and noncash charitable contributions. In July of 2018, the IRS finalized those proposed regulations, thereby creating the final regulations that the IRS will now use when assessing taxpayer compliance related to cash and noncash charitable contributions.
The final regulations, which have an effective date of July 30, 2018, largely adopted the proposed regulations, along with special guidance previously issued. The following discussion items are reminders of things a donor needs to consider when making a donation, and in some cases, things to obtain from a donee organization in order to substantiate a donation deduction.
Cash and Cash Equivalent Donations
The final regulations detail the substantiation requirements for charitable contributions of cash, check, or other monetary gifts, most of which did not change from the proposed regulations. For donations of less than $250, the donor must have a bank record or written communication from the donee organization showing the name of the donee, the date of the contribution and the amount of the contribution. For a donation of $250 or more, the donor must have a contemporaneous written acknowledgement from the donee. The contemporaneous written acknowledgement, which includes email, must include all of the following:
An acknowledgment will be considered to be contemporaneous if the taxpayer obtains the acknowledgment on or before the earlier of the date on which the taxpayer files a return for the taxable year in which the due date (including extensions) for filing such return.
For contributions made by payroll deduction, the substantiation requirements are met if the donor obtains a pay stub, Form W-2, or other employer-furnished document that includes the amount withheld during the tax year for the payment to the donee, and a pledge card or similar document prepared by the donee organization that includes the donee organization’s name.
Donations of Property
Additional information is needed when a donation involves property. For donations of property, if each item of property donated is less than $250, the donor must either keep reliable written records that include the name and address of the donee, the date of the contribution, a description of the property, the estimated fair market value on the date of the contribution, the method used to establish the fair market value, and the condition of the item, or they can obtain a receipt from the donee organization. If the value of each property donation exceeds $250 but is not more than $500, a contemporaneous written acknowledgement must be obtained from the donee organization. For each property donation in excess of $500 but not more than $5,000, the donor must obtain contemporaneous written acknowledgement and file a completed Form 8283 (Section A) Noncash Charitable Contribution with their tax return for the year of the donation.
Each charitable property donation of more than $5,000 requires contemporaneous written acknowledgement from the donee, a qualified appraisal prepared by a qualified appraiser, and completion of Form 8283, Section B, including signature by the qualified appraiser and a person authorized to sign on behalf of the donee organization. For a property donation of more than $500,000, a qualified appraisal of the property must be attached to the donor tax return filed for the year of the donation.
Qualified Appraisal and Qualified Appraiser
The final regulations provide an updated definition of a qualified appraiser. “Qualified appraiser” means an individual with verifiable education and experience in valuing the type of property for which the appraisal is performed. Verifiable education and experience means the individual must have completed professional or college-level coursework in valuing the relevant type of property and have two or more years’ experience in valuing such property type or have earned a recognized appraiser designation.;
Because appraisers may need time to meet the new education and experience requirements, the final regulation’s new appraiser requirements will apply to contributions completed on or after January 1, 2019.
Qualified Appraisal Reasonable-Cause Exception Eliminated
The proposed regulations provided a reasonable cause exception if the donor had reasonable cause to believe the appraisal of a property was done by a qualified appraiser and therefore such appraisal should have been completed in a manner to meet the requirements to be a qualified appraisal. The final regulations eliminated this reasonable-cause exception. As a result, donors have been placed on notice and should request information from any appraiser being considered for engagement to complete a charitable contribution property appraisal to confirm the appraiser being considered will meet the requirements of a qualified appraiser.
Charitable donation substantiation requirements, those things needed to support the deductibility of a charitable donation, are the responsibility of the donor. However, charitable organizations are encouraged to provide written contemporaneous documentation of all charitable donations received, when reasonably possible, even when not technically required, in order to maintain a positive donor relationship. Understanding the various charitable donation requirements for both a donor and donee organization can ensure that donors don’t miss out on the deductibility of their charitable donations and that donee organizations don’t miss out on future charitable donations.
Contact a member of the Eide Bailly Exempt Organization Group for more information or assistance with questions.