This article is the second of a two-part series on substantiating noncash gifts. Part one is on noncash real property. What follows are substantiation considerations for “personal property”—such as clothing, cars, boats, household items, and stock.
The tax rules for gifts of noncash donations can be more complex than cash contributions, where bank records and receipts can play a key role. The gifts in the category of noncash donations come in many more forms, as well.
Household goods, clothing, and furniture are some of the more well-known items people think of as noncash property donations. However, anything of value that can possibly be donated falls under this umbrella for the purposes of gift substantiation, said Ted Batson, CPA and attorney with the accounting firm CapinCrouse.
“Stamps, antiques, jewelry, fur coats, baseball cards—really, anything of worth or items that together will comprise a valuable collection—can be passed on in this way,” Batson said, who is an advisor at large for Church Law & Tax.
Automobiles also are frequently donated to churches—and along with boats and airplanes—vehicle donations require Form 1098-C to be completed by the taxpayer upon filing, said Frank Sommerville, CPA, attorney, and senior editorial advisor for Church Law & Tax.
Fair market value is used to determine the value of noncash items for purposes of the tax deduction the donor can claim. The noncash value should not be provided by the church or charity or included on the donor receipt. Church financial managers, however, need to be able to help guide donors through this donation process.
“Church treasurers need to be familiar with the many legal requirements that apply to charitable contributions so they can determine the deductibility of contributions and properly advise donors in complying with the substantiation requirements,” said CPA and attorney Richard R. Hammar in the Church & Clergy Tax Guide.
Here, then, are some guidelines and insights to help churches do just that for noncash gifts of personal property—broken down by market values or “tiers.”
Noncash gifts of less than $250
Gifts of personal property that fall below $250 are the most common level of property donations, and if a deduction is taken, an itemized receipt from the charitable organization suffices.
However, there is no specific requirement to receipt these gifts, said Vonna Laue, CPA and an senior editorial advisor for Church Law & Tax.
Though not required, churches would be wise to provide a written acknowledgement, because the contemporaneous written acknowledgement—when done promptly and accurately—can encourage donors to give again, said Joseph Scarano, CEO of tax software nonprofit Araize Inc.
“You easily can show your appreciation of your donors’ support by ensuring full compliance,” Scarano said.
If a church does choose to give a receipt, it should include a description of the donated item but should not give a value for the item, said Laue. Again, as stated earlier, valuation is the responsibility of the donor.
Noncash gifts valued from $250 to $500
Gifts falling in this tier require a written acknowledgement from the church or charity. This may be electronic or paper and should include the organization’s name, date, and location of the contribution, as well as a detailed description of the property. (Note: For more information on what must be included in the church’s written acknowledgement, see chapter 8 in the annual Church & Clergy Tax Guide.)
“Donors who make more than one contri-bution of $250 or more must have either a separate acknowledgment for each contri-bution or one acknowledgment that shows the total contributions,” explained Hammar in the tax guide.
Noncash gifts valued at more than $500 but not more than $5,000
Taxpayers whose total value of gifts in a year are over $500 but not more than $5,000 must fill out and file section A of Form 8283 with their tax returns.
“It is the giver’s responsibility to file the Form 8283,” said Laue. However, the church can certainly assist in this process. And making the giver aware of the need to file the form may be helpful and assist in good donor relations.”
And, as is true of all noncash gifts over $250, a receipt from the church is required, said Laue.
For noncash gifts in this tier, Hammar’s tax guide points out that, along with the written receipt or acknowledgement from the church, donors must have written records that include the following:
- Description of how the donor acquired the donated property (for example, by purchase, gift, bequest, inheritance, or exchange).
- The approximate date the donor acquired the property.
- The cost or other basis, and any adjustments to the basis, of property held less than 12 months and, if available, the cost or other basis of property held 12 months or more. This requirement, however, does not apply to publicly traded securities.
“Donors who are not able to provide information on either the date they acquired the property or the cost basis of the property, and who have a reasonable cause for not being able to provide this information, should attach a statement of explanation to their tax return,” according to Hammar’s tax guide.
Noncash gifts of more than $5,000
Noncash gifts in this tier require completion of Section B of Form 8283, Laue said. IRS guidelines for noncash gifts in this tier require a qualified appraisal by an individual who meets specific criteria set forth in a series of guidelines, and compliance is shown on the form within Part III of Section B, which must be completed by the appraiser, she said. No deduction will be given if these IRS guidelines are not strictly followed.
A representative of the donee church signs Form 8283 in order to acknowledge that the church received the noncash item, said Laue, but not to demonstrate an agreement of the appraisal price. And, as is also true for noncash gifts of real property, the appraisal fee must be paid by the donor and cannot be included in the value of the gift, said Batson.
Regarding donations of publicly traded stock listed on a stock exchange, Hammar’s tax guide said that IRS requirements do not apply “since its value is readily ascertainable. Note, however, that gifts of publicly traded stock must be substantiated by completing Part A of Form 8283, even if the stock is valued at more than $5,000. Part A does not require a qualified appraisal. Contributions of nonpublicly traded stock (i.e., stock held by most small, family-owned corporations) are subject to the qualified appraisal requirement, but only if the value claimed by the donor exceeds $10,000.”
For more on appraisal requirements, see “Obtain a Qualified Appraisal” in “Gifts of Property: Help Donors Get It Right.”
Noncash donations of more than $500,000
Noncash gifts of personal property valued at more than $500,000, which is the rarest tier, require completion of Form 8283 and a copy of the full appraisal, Laue said, noting the same requirement exists for art at $20,000 or more, easements on buildings in historic districts, and clothing and household items not in good used condition. Hammar’s tax guide points out that if “a contribution of property other than cash, inventory, or publicly traded securities exceeds $500,000 (if art, $20,000), the qualified appraisal must be attached to the donor’s tax return. For purposes of the dollar thresholds, property and all similar items of property donated to one or more charities are treated as one property.”
“These areas can be more difficult to get documentation and appraisals to substantiate fair market value,” Laue said regarding donations of securities, artwork, and intellectual properties. Copyrights and patents, Sommerville added, are among others where this can be the case, and stocks can fall under certain provisions if they are publicly traded or have restrictions, such as those gifted to a company’s employees.
When in doubt of how to substantiate, seek help from a tax professional.
When Churches Must File a Form 8282
“Form 8282 is required to be completed and signed by a representative of the charitable organization if the gift of noncash property is sold, exchanged, or otherwise disposed of within three years of receipt,” CPA Vonna Laue said, unless the item’s value is under $500 or the gifted item was used for charitable purpose. Additionally, the form must be filed within 125 days after getting rid of the gift, she said. However, “vehicles, boats, and airplanes have entirely different reporting requirements,” Laue said.
For additional information on vehicles, boats, and airplanes, stocks, clothing, and household items—with several helpful examples—see chapter 8 in the Church & Clergy Tax Guide.
Some additional advice
Batson recommended churches continue to become familiar with IRS requirements and secure the services of a competent tax professional when necessary.
While the IRS occasionally tweaks its rules, he added, those minor changes often come more to areas like the appraisals and the individuals who may perform them versus specific types of noncash donations.
“There’s not been any significant changes to the rules in the recent past, but this is an area [where taxpayers don’t have a lot of education], and people don’t deal with this routinely,” he said. “The IRS routinely wins cases where someone’s failed to follow these rules.”
As stated elsewhere in this article, the primary responsibility for the valuation falls on the donor. Even so, the church and other charitable organizations need to help donors get it right. “And for all to work together seamlessly, education has to play its part,” Batson stressed.
Sommerville said that instruction on documentation is where he spends the majority of his time in teaching. And an important thing to teach the donor is that the decision to claim a deduction must be made prior to donation and not when filing, he said.
“Where I see the most trouble is with compliance, receipts, and documentation,” Sommerville said. “Documentation is a one-shot deal. Either you get it at the time of donation or you don’t, and you can’t go back and re-create that.”
One way churches can help donors is to designate trained employees to explain the process, have copies of appropriate tax forms on hand or know where to easily find and download them online, and sign donation acknowledgements, the tax experts said. This will help donors feel more secure about giving when compliance is part of the conversation.
“Whether it’s along these lines or knowing when to call on a qualified professional to help, being prepared and in that mindset is key,” Sommerville said. “You have to be ready ahead of time because you just know donations are going to happen.”