The Treasury Department and IRS have issued proposed regulations covering substantiation and reporting requirements for charitable contribution deductions, reflecting changes made by the American Jobs Creation Act of 2004 and the Pension Protection Act of 2006 (PPA).
Contributions made by cash, check, or other monetary gift. Under the PPA, monetary donations of less than $250 require either (1) a bank record, or (2) a written communication from the donee organization acknowledging the donation. Monetary donations of $250 or more require both of these items. Types of acceptable bank records include:
- A statement from a financial institution,
- An electronic funds transfer receipt,
- A canceled check,
- A scanned image of both sides of a cancelled check obtained from a bank website, and
- A credit card statement.
The written communication must be contemporaneous. That is, it must be received by the taxpayer the earlier of (1) the date the original return is filed for the year the donation was made, or (2) the due date (including extensions) for filing the donor’s original return for that year. Acceptable written communication includes electronic mail correspondence from the donee organization.
For contributions made via payroll deduction, the taxpayer must have a pay stub, Form W-2, or other employer-furnished document showing the amount withheld and a pledge card or other document from the charitable organization showing the donee’s name.
It is noted in the preamble to the proposed regulations that the regulations do not provide a de minimis exception to these rules, because doing so would go against Congressional intent that substantiation requirements apply to monetary donations of any size. However, there is an exception for unreimbursed out-of-pocket expenses of less than $250 incurred by a taxpayer in connection with rendering services to a charitable organization. Although a bank record or written acknowledgment is not required in this case, the taxpayer is advised to keep appropriate records (for example, a mileage log). There is also an exception for transfers to charitable remainder trusts that meet certain requirements.
Noncash charitable contributions. Contributions of property to a charitable organization require the following substantiation:
- Less than $250—A receipt from the donee organization or, if it is impractical to get a receipt, reliable written records. (See below)
- $250 to $500—A contemporaneous written acknowledgment.
- More than $500 to $5,000—A contemporaneous written acknowledgment and completion of Section A of Form 8283, Noncash Charitable Contributions.
- More than $5,000 to $500,000—A contemporaneous written acknowledgment, obtainment of a qualified appraisal prepared by a qualified appraiser, and completion of Section B of Form 8283. For donations of certain publicly traded securities, inventory, and certain other items, Section A of Form 8283 should be completed instead of Schedule B, and a qualified appraisal is not required.
- More than $500,000— A contemporaneous written acknowledgment, obtainment of a qualified appraisal prepared by a qualified appraiser, which must be attached to the return, and completion of Section B of Form 8283. For donations of certain publicly traded securities, inventory, and certain other items, Section A of Form 8283 should be completed instead of Schedule B, and a qualified appraisal is not required
When applying the substantiation rules for noncash contributions, all similar items of property must be aggregated.
Some types of property have additional substantiation requirements, notably:
- A donation of a car or other vehicle.
- A donation of a single article of clothing or household item that is valued at more than $500, which is not in good used condition or better, requires a qualified appraisal be obtained and submitted with the return (in addition to completion of Section A or Section B of Form 8283, as applicable).
Example: A taxpayer has a marble-topped table that retails for $2,500. However, the table is badly damaged and not usable without extensive repairs. A qualified appraiser determines that, despite the damage, the quality of the marble and other features give the table a value of $650. The taxpayer may submit the qualified appraisal with the return and claim the $650 deduction. Had the table been in good used or better condition, the appraisal would not be needed unless the claimed value was more than $5,000.
While the proposed regulations do not define the “good used condition or better” requirement for donations of clothing and household items, the preamble suggests that items donated must be “of meaningful use to charitable organizations.” Household items include furniture, furnishings, electronics, appliances, linens, and similar items. Food, paintings, antiques, and other objects of art, jewelry, gems, and collections are not household items.
Noncash contributions of less than $250. If it is impractical to obtain a receipt for noncash contributions of less than $250 (e.g., when items such as canned goods are donated), the donor may satisfy the recordkeeping rules by maintaining reliable written records for the contribution. A taxpayer’s records are considered reliable if they contain:
- All information that would be included on a receipt (i.e. name and address of the donee, date of the contribution, and description of the property donated),
- The fair market value of the property and the method used in determining the value, and
- The condition of clothing and household items donated.
Qualified appraisals. The proposed regulations expand on the transitional guidance of Notice 2006-96. A qualified appraisal means an appraisal document that is prepared by a qualified appraiser in accordance with generally accepted appraisal standards. A qualified appraisal must include all of the following:
- The name, address, taxpayer identification number, and qualifications of the appraiser and, if applicable, the name of the company or organization employing the qualified appraiser.
- A detailed description of the property, including the condition of the property.
- The valuation effective date, the FMV of the property and method used for the valuation, and any restrictions or agreements regarding the use of the property.
- The specific basis for the valuation, such as specific comparable sales or statistical sampling
- A statement that the appraisal was prepared for income tax purposes.
- The following declaration by the appraiser:
“I understand that my appraisal will be used in connection with a return or claim for refund. I also understand that, if a substantial or gross valuation misstatement of the value of the property claimed on the return or claim for refund results from my appraisal, I may be subject to a penalty under section 6695A of the Internal Revenue Code, as well as other applicable penalties. I affirm that I have not been barred from presenting evidence or testimony before the Department of the Treasury or the Internal Revenue Service pursuant to 31 U.S.C. section 330(c).”
- The signature of the appraiser and the appraisal report date.
Qualified appraisers. Generally, a qualified appraiser is an individual who has verifiable education and experience relevant to the type of property being valued. This requirement is satisfied if the individual has either passed the appropriate professional or college level coursework and has at least two years of experience or has earned a recognized appraisal designation for valuing the type of property involved (e.g. Senior Residential Appraiser (SRA)).
The proposed regulations are effective on the date after the date the final regulations are published in the Federal Register. |