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The American Jobs Creation Act of 2004 and the Pension Protection Act of 2006 made changes to the charitable contribution deduction recordkeeping and substantiation requirements. In 2008, the IRS issued proposed treasury regulations to address these changes. On July 30, 2018, the IRS issued final treasury regulations that generally adopt the proposed regulations that were issued in 2008 with a few modifications.
Cash Contributions
The final regulations clarify the recordkeeping requirements for all cash contributions, regardless of the amount of the contribution. In order to deduct any contribution of cash, check or other monetary gift for federal income tax purposes, a donor must maintain, as a record of the gift, a bank record or written communication from the charitable organization that shows the name of the organization, date of contribution and amount of the donation. The final regulations provide that these record keeping requirements are in addition to the substantiation rules which require a contemporaneous written acknowledgement of contributions of $250 or more.
The final regulations also address the use of a blank pledge card given to a donor who makes a contribution of cash, check or other monetary gift to an organization that collects contributions that are subsequently distributed to other organizations, such as a combined federal campaign. Under the final regulations, a blank pledge card provided by a donee organization and subsequently filled out by the donor does not satisfy the required recordkeeping requirements.
Noncash Contributions
The final regulations also detail the recordkeeping and substantiation requirements for different thresholds of noncash contributions (other than publicly traded stock):
The final regulations are generally effective as of July 30, 2018 but there is a transition rule that applies to the appraisal requirements which provides an effective date for contributions made on or after January 1, 2019.
The takeaway for donors is that compliance with these recordkeeping and substantiation rules is critical as there has been recent activity where taxpayers have been denied a charitable deduction for not following the recordkeeping and substantiation rules. The takeaway for charities is understanding the importance of insuring their contribution acknowledgements are in compliance with these rules so as to assist their donors in achieving a tax deduction.
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