IRS Issues New Charitable Contribution Regulations

Regulations clarify questions about contribution substantiation requirements.

Church Finance Today

IRS Issues New Charitable Contribution Regulations

Regulations clarify questions about contribution substantiation requirements.

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.

This abbreviated written acknowledgment from the charity must contain the following information:

  • a description of the services provided by the donor
  • the date the services were provided
  • whether or not the charity provided any goods or services in return, and
  • if the charity provided any goods or services, a description and good faith estimate of the fair market value of those goods or services

In addition, the abbreviated written acknowledgment must be received by the taxpayer before the earlier of (1) the date he or she files a tax return claiming the contribution deduction, or (2) the due date (including extensions) for the tax return for that year.

Here is an example of an abbreviated written acknowledgement that complies with the new regulations: “Greg Jones participated on a missions trip sponsored by First Church from July 1-10, 1995, in the nation of Panama. His services included working in a medical clinic. The church provided no goods or services in return for these services.” The church should be sure that Greg receives this receipt before the earlier of (1) the date he files a tax return claiming the contribution deduction, or (2) the due date (including extensions) for the tax return for that year.

This article originally appeared in Church Treasurer Alert, October 1995.

Richard R. Hammar is an attorney, CPA and author specializing in legal and tax issues for churches and clergy.

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