People support charitable organizations for philanthropic reasons. But they are also motivated by the tax deduction afforded by the U.S. Tax Code. To substantiate a donation and take the related deduction, a donor is required by the IRS to acquire and keep “contemporaneous written acknowledgement” from the charitable organization. Depending on the amount and type of donation, the required documentation comes in various forms. Practically speaking, charitable organizations are responsible for knowing what type of information must be provided to their donors, though the onus is on the donor to keep the documentation and meet any other recordkeeping requirements.
Generally, contemporaneous written acknowledgement issued by the charitable organization must include the following, as applicable:
- The amount of cash donated
- A description of any non-cash property donated
- A statement and good faith estimate of the value of any goods or services related to the donation of cash or property (if the donor received more than a de minimis item—that is, an amount too small to merit consideration)
- Acknowledgement if the organization provided intangible religious benefits
- A description of out-of-pocket expenses incurred by the donor and whether the donor received goods or services in exchange for out-of-pocket expenses
The organization must provide the written acknowledgment when it receives a single donation of $250 or more from a donor. It can be provided at the time of the gift, or once for the entire tax year. The organization is not required to acknowledge separate donations of less than $250 each, even if they total more than $250 for a tax year. However, charitable organizations often send an annual statement to donors reporting their total donation for the year, regardless of the amount.
The IRS does not require organizations to follow a prescribed format for the written acknowledgment. It can be paper-based, such as a statement, letter or postcard, or electronic. To qualify as contemporaneous, a written acknowledgment must be received by a donor before the earlier of the date the donor files their original federal tax return for the year the contribution was made, or the due date, including extensions, for filing their tax return for that year.
In addition to documentation obtained from a donee organization, a donor is also required to maintain written records that include the following:
- Name and address of the organization
- Date and location of the contribution
- Description of the property
- Fair market value of the property (or cost, if elected)
- Details regarding contributions of partial interests of property, if applicable
- The terms of any conditions associated with the contribution
- For separate contributions of $500 or more, details of how and when the property was acquired and the property’s cost or basis (Cost basis is not required for donations of publicly traded securities.)
- For separate contributions of $5,000 or more, a qualified appraisal to be obtained and attached to the income tax return
There are also other forms and documentation required for donations of property, such as artwork, securities, vehicles or inventory. Click here to view the chart that summarizes the IRS's rules for substantiation and documentation.
Donors typically expect to maximize their tax deductions for charitable contributions. Proper documentation is the primary requirement established by the IRS to take the deductions. Organizations can help their donors satisfy this requirement by ensuring they issue the proper acknowledgment.
Organizations or donors with questions about the documentation or substantiation requirements can contact an HBK tax advisor.