Substantiation of Cash Donations

There is some confusion regarding this issue.

Church Law and Tax 1991-05-01 Recent Developments

Charitable Contributions

There is some confusion regarding the documentation required to substantiate a charitable contribution of cash. The confusion has been caused by an organization that is informing churches that checks and periodic church contribution summaries are not sufficient documentation to support a charitable contribution deduction. This organization is informing church leaders that cash contributions are deductible only if donors use special offering envelopes (which it will provide for a fee), and that pastors and board members face possible jail sentences for not following its advice. Such advice is reckless and irresponsible, and is needlessly causing alarm. Let’s see what the IRS itself says about the documentation needed to substantiate cash contributions. In Publication 526, the IRS states that “if you make a charitable contribution of money you must keep one of the following for each contribution you make: (1) a canceled check, or (2) a receipt (or a letter or other written communication) from the charitable organization showing the name of the organization, the date of the contribution, and the amount of the contribution, or (3) other reliable written records that include the information described in (2).” This language is taken almost word-for-word from income tax regulation 1.170A-13(a). The regulations are official interpretations of the tax law, and the IRS is bound by them. Publication 526, and the income tax regulations, clearly authorize the use of canceled checks to substantiate contributions. They also authorize the use of periodic “contribution summaries” issued by a church summarizing the contributions made by an individual donor over each 3-month (or some other) period. Neither the IRS, nor any court, has ever said that churches must use special “offering envelopes,” that such envelopes must be kept by the church for a specific length of time, or that clergy and church board members can “go to jail” for not using offering envelopes. Any information you receive to the contrary is false and should be completely disregarded. We encourage denominational and religious publications to assist us in publicizing this information, and in putting an end to this tragic rumor. Of course, many churches do use offering envelopes. They are an excellent way to substantiate contributions of coins and currency. They also reduce the risk of offering counters pocketing loose change. However, even with respect to coins and currency, offering envelopes are not required. The IRS permits donors to substantiate such contributions with any reliable written record (such as a notation on a personal calendar or in a diary). In a recent case, the Tax Court permitted a donor to substantiate cash contributions by means of notations she had made on her kitchen calendar! The points we are making are these: (1) Offering envelopes may be desirable in some cases, but they are never legally required. (2) The IRS accepts canceled checks as sufficient evidence supporting a charitable contribution, whether or not offering envelopes are used. (3) The IRS accepts a church’s “contribution summary” or report as sufficient evidence supporting a charitable contribution, whether or not offering envelopes are used. (4) If a donor contributes coins or currency, the IRS accepts any “reliable written records” as sufficient evidence supporting the contribution, whether or not offering envelopes are used. The income tax regulations specify that a written record will be considered “reliable” if it is made close to the time of the contribution, and it is part of a regular recordkeeping procedure. For example, the regulations state that “a contemporaneous diary entry stating the amount and date of the donation and the name of the donee charitable organization made by a taxpayer who regularly makes such diary entries would generally be considered reliable.” (5) No reported case has ever ruled that churches must use offering envelopes. (6) The IRS has never said, in any published ruling, that churches must use offering envelopes. (7) Pastors and church board members will not “go to jail” for following IRS Publication 526 or the income tax regulations. (8) More complex reporting requirements apply to contributions of noncash property. All that is being addressed here are contributions of cash.

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