Substantiating Your Donor’s Charitable Contributions
By Jennie Compton, HoganTaylor Tax Senior Manager
Many charitable organizations described in IRS code section 501(c)(3) are eligible to receive tax deductible contributions. Two situations will initiate a charity’s written disclosure to donors:
- a quid pro quo donation over $75; or
- any other donation over $250.
A quid pro quo donation is a payment made to a charity by a donor which includes a donation component and a goods or services component. An example is a $100 donor payment to attend a fundraising gala including a meal valued at $25. In this example, the donor has made a deductible charitable contribution of $75 and a nondeductible payment for goods or services of $25. The charity may provide disclosure either with the contribution solicitation or when the quid pro quo donation is received. The written disclosure must:
- Inform the donor that the amount of the contribution that is deductible for federal income tax purposes is limited to the excess of any money (and the value of any property other than money) contributed by the donor over the value of goods or services provided by the charity; and
- Provide the donor with a good faith estimate of the value of the goods and/or services that the donor received.
An exception is made if the goods or services provided are of insubstantial value. Then , no written disclosure is required. Insubstantial value is defined by the IRS as:
- Not more than 2% of the charitable payment or $50 whichever is less; or
- A token item bearing the organization’s name or logo, such as a calendar or a key chain.
Further, no disclosure is required if the payment to the charity has no donative intent or if it results in intangible religious benefits. A penalty of $10 per quid pro quo contribution not to exceed $5,000 per fundraising event or mailing is imposed on a charity which does not provide the required acknowledgements.
A donation over $250 does not impose an IRS filing requirement on the charity receiving the donation. No IRS penalty is generated by the charity for not providing an acknowledgement. However, the charity’s donor must obtain and keep a contemporaneous written acknowledgement prior to filing his tax return for the year he deducts his payment. Failure to provide your donor with the paperwork necessary to deduct his contribution will certainly put a damper on his charitable inclinations.
Be sure to keep your donors in a charitable mood by providing them with the required documentation as soon as possible.