An important feature of being a tax-exempt organization under Section 501(c)(3) of the Internal Revenue Code is the ability to accept tax deductible donations. There are numerous IRS rules that govern how to properly acknowledge such donations. These rules are summarized below.
1. Substantiation of Contributions of $250 or More: The Charity’s Role
In order for a donor to take an income tax deduction for a charitable contribution of $250 or more, the donor must receive a contemporaneous written acknowledgement of the donation from the charity. 1 The donor must receive this acknowledgement by the earlier of the date the donor files his tax return for the year the donation was made, or the due date, including extensions, for filing the return.2 A canceled check is not sufficient.
There is no required format for the acknowledgement. (It does not need to include the donor’s social security number or taxpayer ID number.) However, the acknowledgement must contain the following information (a few sample acknowledgments are provided below):
· The acknowledgement should describe the property that was donated, or state the amount of cash received. The charity should not place a monetary value on donated property - that is the donor’s responsibility. 3 However, the charity should provide a description that clearly describes the donated property (for example, don’t write “thank you for your donation of a computer;” write “thank you for your donation of a Brand X computer, model number 1234, keyboard, and 15” monitor”)
§ If the donor received no benefit in exchange for the donation, that fact must be included in the acknowledgment.
§ If the donor received any goods or services for the donation (see the discussion on “quid pro quo contributions” below), then the acknowledgment must include the estimated fair market value of those goods or services.4
Charities are not required to provide receipts for donations received through employer withholding arrangements. Instead, the donors may substantiate their contribution by:
§ Using an employer-generated document such as W-2 or a pay stub, and
- A statement from the charity that no goods or services were provided in exchange for the donations.5
1 26 USC Sec. 170(f)(8)(A) [http://frwebgate1.access.gpo.gov/cgi-bin/waisgate.cgi?WAISdocID=8697622990+1+0+0&WAISaction=retrieve]
2 26 USC Sec. 170(f)(8)(C) [http://frwebgate4.access.gpo.gov/cgi-bin/waisgate.cgi?WAISdocID=4513017019+29+0+0&WAISaction=retrieve]
3 26 USC Sec. 170(f)(8)(B)(i) [http://frwebgate4.access.gpo.gov/cgi-bin/waisgate.cgi?WAISdocID=4513017019+29+0+0&WAISaction=retrieve]
4 26 USC Sec. 170(f)(8)(B)(ii)(iii) [http://frwebgate4.access.gpo.gov/cgi-bin/waisgate.cgi?WAISdocID=4513017019+29+0+0&WAISaction=retrieve]
5 Proposed regulation 1.170A-13(f)(11) [ftp://ftp.fedworld.gov/pub/irs-regs/ia4494.txt]
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