The rules for substantiating charitable contributions changed on January 1, 1994. For a donor to deduct a charitable contribution (of cash or property) of $250 or more, several new requirements apply. The important points are: (1) donors no longer will be able to substantiate individual cash contributions of $250 or more with canceled checks; (2) the current contribution receipts provided by your church probably do not satisfy the new requirements (summarized in the table); and (3) in order for a donor to deduct contributions of $250 or more made in 1994, the donor must receive a receipt from the church by the earlier of the following two dates: the date the donor files a tax return claiming a deduction for the contribution, or the due date (including extensions) for filing the return.
The substantiation requirements vary depending on the nature of the contribution. They are summarized in the following table. Because of the complexity of the substantiation requirements, they are presented in the form of 10 rules. Simply find the rules that apply to a particular contribution, and follow the substantiation requirements described. Keep this table handy so that you can refer to it as needed.
Key point. The substantiation requirements are complex, but they are very important. Your church could provide a significant benefit to its members by sharing the information contained in this article with donors—and especially those who make contributions of noncash property.
SUBSTANTIATION REQUIREMENTS FOR CHARITABLE CONTRIBUTIONS
Note: More than one rule may apply to a particular contribution. Apply each rule that applies.
|Form of contribution
|individual cash contributions of less than $250
|new rules do not apply; substantiate with any one of the following: (1) a canceled check; (2) a receipt or letter from the donee church showing the church’s name and the amounts and dates of the contributions, or (3) any other reliable written record showing the name of the church
|individual cash contributions of $250 or more
|new rules apply; donors will not be allowed a tax deduction for individual cash contributions of $250 or more unless they receive a written receipt from the church or charity that satisfies the following requirements: (1) The receipt must be in writing; (2) the receipt must identify the donor by name (a social security number is not required); (3) The receipt should list separately each individual contribution of $250 or more (do not lump all contributions together); (4) the receipt must state whether or not the church provided any goods or services to the donor in exchange for the contribution, and if so, the receipt must include a good faith estimate of the value of those goods or services; (5) if the church provides no goods or services to a donor in exchange for a contribution, or if the only goods or services the church provides are “intangible religious benefits,” then the receipt must contain a statement to that effect; (6) the written acknowledgment must be received by the donor on or before the earlier of the following two dates: the date the donor files a tax return claiming a deduction for the contribution, or the due date (including extensions) for filing the return
|individual cash contributions of $75 or less that are part contribution and part payment for goods or services received in exchange (“quid pro quo” contributions)
|the new quid pro quo rules (Rule 4) do not apply to contributions of $75 or less, these contributions are still only deductible to the extent they exceed the value of the goods or services provided in exchange
|individual cash contributions of more than $75 that are part contribution and part payment for goods or services received in exchange (“quid pro quo” contributions)
|new rules apply (these are in addition to Rule 2); the church must provide a written statement to the donor that: (1) informs the donor that the amount of the contribution that is tax-deductible is limited to the excess of the amount of cash contributed by the donor over the value of any goods or services provided by the church in return; and (2) provides the donor with a good faith estimate of the value of the goods or services furnished to the donor
Note: a written statement need not be issued if only token goods or services are provided to the donor (generally, with a value of $62 or 2% of the amount of the contribution, whichever is less) or if the donor receives solely an intangible religious benefit that generally is not sold in a commercial context outside the donative context
|individual contributions of noncash property valued at less than $250
|new rules do not apply; substantiate with a receipt that lists the donor’s name, the church’s name, and date and location of the contribution, and description (but not value) of the property
|individual contributions of noncash property valued at $250 or more
|new rules apply; donors will not be allowed a tax deduction for individual contributions of property valued at $250 or more unless they receive a written receipt from the church or charity that satisfies the requirements of Rule 2 (above) and that describes the property (no value needs to be stated)
|individual contributions of noncash property valued by the donor at $500 to $5,000
|the income tax regulations require that all donors of noncash property valued at $5,000 or less maintain reliable written records with respect to each item of donated property; the reliable written records must include the following information: (1) the name and address of the church; (2) the date and location of the contribution; (3) a detailed description of the property; (4) the fair market value of the property at the time of the contribution, including a description of how the value was determined; (5) the cost or other basis of the property; (6) if less than the donor’s entire interest in property is donated during the current year, an explanation of the total amount claimed as a deduction in the current year; (7) the terms of any agreement between the donor and church relating to the use, sale, or other disposition of the property
Note: in addition to complying with Rule 6 (above), a donor must complete the front side (Section A, Part I, and Part II if applicable) of IRS Form 8283 and enclose the completed form with the Form 1040 on which the charitable contribution deduction is claimed
|individual contributions of noncash property valued at more than $500
|if the donated property is valued by the donor in excess of $500, the following additional written records must be maintained by the donor: (1) an explanation of the manner of acquisition by the donor (such as by purchase, gift, inheritance, or exchange), and (2) the cost or other basis of the property immediately preceding the date on which the contribution was made; these records are in addition to the requirements discussed above in connection with individual contributions of property valued by the donor at $250 or more
|individual contributions of noncash property valued at more than $5,000
|in addition to complying with Rule 6 (above), a donor must obtain a qualified appraisal of the donated property from a qualified appraiser, and complete a qualified appraisal summary (the back side of Form 8283), and has the summary signed by the appraiser and a church representative; the completed Form 8283 is then enclosed with the Form 1040 on which the charitable contribution deduction is claimed
|quid pro quo contributions of noncash property
|new rules apply (these are in addition to Rule 2); see Rules 3 and 4 (above)
This article originally appeared in Church Treasurer Alert, December 1993.