Documenting Charitable Contributions

A frequently encountered question is what records are required for charitable contributions. In recent years, Congress has passed some very stringent recordkeeping rules for charitable contributions and some harsh penalties for understating taxable income. The following is a summary of those recordkeeping rules currently in effect for a variety of contribution types. This list is not all-inclusive, so if you don’t see anything that applies to your particular situation, please give our office a call.

Cash Contributions - Cash contributions include those paid by cash, check, electronic funds transfer or credit card (see special requirements for payroll cash contributions). Taxpayers cannot deduct a cash contribution, regardless of the amount, unless they can document the contribution in one of the following ways:

1. A bank record that shows the name of the qualified organization, the date of the contribution, and the amount of the contribution. Bank records may include:
a. A canceled check,
b. A bank or credit union statement, or
c. A credit card statement.

2. A receipt (or a letter or other written communication) from the qualified organization showing the name of the organization, the date of the contribution, and the amount of the contribution.

As a result of these rules, taxpayers may need to change the way they make contributions to certain charities. For example, a taxpayer who has been used to dropping a $5 or $10 bill into the collection plate each week at a worship service would no longer be able to deduct that donation on his tax return. Instead, he should write a check to the religious organization and put the check into the collection plate, or make other arrangements with the organization for making his contribution to ensure that a bank record or receipt/letter is provided.

Payroll Contributions – For contributions by payroll deduction, a taxpayer must keep:

A. A pay stub, Form W-2, or other document furnished by the employer that shows the date and amount of the contribution, and

B. A pledge card or other document prepared by or for the qualified organization that shows the name of the organization. If the employer withheld $250 or more from a single paycheck, the pledge card or other document must state that the organization does not provide goods or services in return for any contribution made to it by payroll deduction. A single pledge card may be kept for all contributions made by payroll deduction, regardless of the amount, as long as it contains all of the required information.

If the pay stub, Form W-2, pledge card, or other document does not show the date of the contribution, the taxpayer must also have another document that does show the date of the contribution. If the pay stub, Form W-2, pledge card, or other document does show the date of the contribution, the taxpayer need not have any other records except those described in (A) and (B).

Non-Cash Contributions

Deductions of Less Than $250 - A non-cash contribution includes the donation of property, such as used clothing or furniture, to a qualified charitable organization. If a taxpayer claims a non-cash contribution, it must get and keep a receipt from the charitable organization showing:

1. The name of the charitable organization,

2. The date and location of the charitable contribution, and

3. A reasonably detailed description of the property that was donated.

Note:
A taxpayer is not required to have a receipt where it is impractical to get one (for example, if the property was left at a charity’s unattended drop site).

Deductions of At Least $250 But Not More Than $500 - If a taxpayer claims a deduction of at least $250 but not more than $500 for a non-cash charitable contribution, he or she must have and keep an acknowledgment of the contribution from the qualified organization. If the contributions were made by more than one contribution of $250 or more, the taxpayer must have either a separate acknowledgment for each or one acknowledgment that shows the total contribution. The acknowledgment(s) must be written and should include the following:

1. The name of the charitable organization,

2. The date and location of the charitable contribution,

3. A reasonably detailed description (but not necessarily the value) of any property contributed,

4. Whether or not the qualified organization gave the taxpayer any goods or services as a result of the contribution (other than certain token items and membership benefits), and

5. If goods and or services were provided to the taxpayer, the acknowledgement must include a description and good faith estimate of the value of those goods or services. If the only benefit received was an intangible religious benefit (such as admission to a religious ceremony) that generally is not sold in a commercial transaction outside the donative context, the acknowledgment must say so and does not need to describe or estimate the value of the benefit.

Deductions Over $500 But Not Over $5,000 - If a taxpayer claims a deduction over $500 but not over $5,000 for a non-cash charitable contribution, they must have the same acknowledgement and written records as for contributions of at least $250 but not more than $500 (as described above). In addition, the records must also include:

o How the property was obtained (for example, by purchase, gift, bequest, inheritance or exchange).

o The approximate date the property was obtained or, if created, produced, or manufactured by the taxpayer, the approximate date the property was substantially completed.

o The cost or other basis, and any adjustments to the basis, of property held less than 12 months and, if available, the cost or other basis of property held 12 months or more. This requirement, however, does not apply to publicly-traded securities. If the taxpayer is not able to provide information on either the date the property was obtained or the cost basis of the property and there is reasonable cause for not being able to provide this information, attach a statement of explanation to the return.

Deductions Over $5,000 – Because of special rules related to contributions over $5,000, please call this office for documentation requirements of the particular contribution before making the contribution.

Out-of-Pocket Expenses - If a taxpayer renders services to a qualified organization and has unreimbursed out-of-pocket expenses related to those services, the following three rules apply:

1. The taxpayer must have adequate records to prove the amount of the expenses.

2. The taxpayer must get an acknowledgment from the qualified organization that contains:
a. A description of the services provided,
b. A statement of whether or not the organization provided the taxpayer with any goods or services to reimburse the taxpayer for the expenses incurred,
c. A description and a good faith estimate of the value of any goods or services (other than intangible religious benefits) provided as reimbursement, and
d. A statement that the only benefit received was an intangible religious benefit, if that was the case. The acknowledgment does not need to describe or estimate the value of an intangible religious benefit.

3. The acknowledgement must be obtained before the earlier of:
a. The date of filing the return for the year the contribution was made, or
b. The due date, including extensions, for filing the return.

Car Expenses - When a taxpayer claims expenses directly related to the use of their car in giving services to a qualified organization, they must keep reliable written records. Whether the records are considered reliable depends on all the facts and circumstances. Generally, they may be considered reliable if made regularly and at or near the time the expense was incurred. The records must show the name of the organization being served and the date each time the car was used for a charitable purpose. If the standard mileage rate of 14 cents a mile is used, the records must show the miles driven for the charitable purpose.

If the taxpayer deducts actual expenses, the records must show the costs of operating the car that are directly related to a charitable purpose. General repairs and maintenance expenses, depreciation, registration fees, or the costs of tires or insurance cannot be deducted.

Vehicle Donations - When the deduction claimed for a donated vehicle exceeds $500, IRS Form 1098-C (or other statement containing the same information as Form 1098-C) furnished by the charitable organization must be attached to the filed tax return. Without the 1098-C or other statement, no deduction is allowed. When the charity sells the vehicle, the Form 1098-C (or other statement) must be obtained within 30 days of the sale of the vehicle. Otherwise, the Form 1098-C (or other statement) must be obtained within 30 days of the donation.

CAUTION:

With the exception of the vehicle contributions, charitable gift acknowledgements must be obtained before the earlier of:
a. The date your return was filed for the year you made the contribution, or
b. The due date, including extensions, for filing the return.

If you have questions regarding charitable recordkeeping or what is deductible as a charitable contribution, please give our office a call.

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