Substantiation of Charitable Contributions

Insufficient substantiation can lead to a denial of charitable deductions.

Background. The IRS ruled that a corporation could not deduct a contribution it made to a charity since it failed to properly substantiate the contribution. A corporation made a sizeable contribution to a charity for the care of the needy. The charity issued the corporation a receipt acknowledging the contribution and indicating that the charity did not provide any goods or services in return for the contribution. The IRS ruled that the corporation was not entitled to a charitable contribution deduction for three reasons.

(1) A timely receipt. The income tax regulations require that a charity’s written acknowledgment of a contribution be furnished on or before the earlier of the date on which the taxpayer files a return for the taxable year in which the contribution was made or the due date for filing such return. The IRS concluded that this requirement was not met.

(2) The charity’s written acknowledgment. Second, the IRS concluded that the charity’s written acknowledgment did not comply with the substantiation requirements for contributions valued at $250 or more since it did not indicate whether the charity provided any goods or services in return for the contributed property.

(3) Form 8283.
(3) Form 8283. Since the corporation donated property that it valued at more than $5,000, it was required by the income tax regulations to obtain a qualified appraisal of the property and enclose a “summary” of the appraisal (on IRS Form 8283) with the tax return on which the contribution deduction was claimed. A Form 8283 was not enclosed with the corporation’s tax return. When asked by an IRS agent about the missing Form 8283, the corporation furnished the missing form, but the IRS concluded that this was too late since the form did not accompany the corporation’s tax return.

Relevance to church treasurers. This case demonstrates the importance of church treasurers being familiar with the substantiation requirements that apply to charitable contributions. While the responsibility for complying with these rules is on donors, the fact remains that many donors (and their advisors) are not familiar with these rules. Church treasurers can play a vital role in helping donors comply with these rules by being familiar with them. This case suggests the following specific actions that church treasurers can take: (1) Issuing receipts soon after the close of a calendar year. (2) Advising donors (in church newsletters, bulletins, or letters) not to file their tax returns until they have received their receipt from the church. (3) Confirm that receipts issued to donors comply with the requirements of the income tax regulations. (4) Have several current copies of Form 8283 (with instructions) on hand, and give a copy to each donor who contributes noncash property to the church. Note that donors who contribute publicly traded stock are not required to complete Form 8283. IRS Letter Ruling 200003005.

Resource. All of the requirements for substantiating charitable contributions are addressed fully in chapter 8 of Richard Hammar’s annual Church and Clergy Tax Guide. Church treasurers should be familiar with the information in this chapter.

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

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