OUR THOUGHTS ON:

Final Regulations on Recordkeeping and Substantiating Charitable Contributions

Higher Education|Internal Revenue Service|Not-for-Profit|Tax

By Debra Ries

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):

  • To claim a deduction for a noncash contribution for property of less than $250, the donor must obtain a receipt from the donee organization or keep reliable records. 
     
  • To claim a deduction for a noncash contribution of at least $250 but not more than $500, the donor is required to obtain a contemporaneous written acknowledgement. 
     
  • To claim a noncash contribution of more than $500 but not more than $5,000, the donor must obtain a contemporaneous written acknowledge from the donee organization and file a completed IRS Form 8283, Noncash Charitable Contributions, (Section A) with the donor’s tax return.   
     
  • To claim a noncash contribution deduction of $5,000 or more, the donor must obtain, in addition to a contemporaneous written acknowledgement, a qualified appraisal, and complete and file an IRS Form 8283 with the donor’s tax return.  If the claimed deduction is more than $500,000, the donor must also attach a copy of the qualified appraisal to the donor’s tax return for the year of the contribution and any subsequent years where there is a contribution carryover.  The final regulations also define the terms “qualified appraisal” and “qualified appraiser.” 

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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