The IRS issued regulations in August that clarify a few questions that have arisen in applying the new charitable contribution substantiation rules. Perhaps the most relevant provision for church treasurers is the substantiation of "out-of-pocket" expenses incurred by a person who performs volunteer services on behalf of a charity.
To illustrate, let's say that Greg, a member of First Church, participates in a short-term missions project and in the process incurs $300 of unreimbursed out-of-pocket travel expenses. The IRS has long acknowledged that such expenses are deductible as a charitable contribution. But what about the new rules for substantiating charitable contributions of $250 or more? Do they apply to this kind of contribution? Is the church responsible for keeping track of Greg's travel expenses in order to determine if they are $250 or more?
The proposed regulations address this common problem. The IRS acknowledged that a charity "typically has no knowledge of the amount of out-of-pocket expenditures incurred by a taxpayer, and therefore, would have difficulty providing taxpayers with substantiation of unreimbursed expenditures." To address this concern, the proposed regulations provide that where a taxpayer incurs unreimbursed expenses in the course of performing services for a charitable organization, the expenses may be substantiated by the donor's normal records and an "abbreviated written acknowledgment" provided by the charitable organization.