Taking a Tax Deduction for a Charitable Contribution
New Documentation Responsibilities of the Donor and the Charity
No deduction will be allowed for any charitable contribution of $250.00 or more unless the donor has contemporaneous written substantiation from the charity. (Contemporaneous means that the documentation must be obtained by the donor no later than the date the donor actually files a return for the tax year in which the contribution was made.) Taxpayers may no longer rely on a cancelled check to substantiate a cash contribution of $250.00 or more. The responsibility for obtaining this contemporaneous substantiation lies with the donor, who may need to request such documentation from the charity. EITHER separate statements for each contribution of $250.00 or more OR periodic statements substantiating contributions of $250.00 or more may be provided by the recipient charity.
Letters, postcards, or computer-generated forms are acceptable forms of documentation if they provide sufficient information to substantiate the deductible contribution. The acknowledgement should note the amount of any cash contribution and, if the donation is in the form of goods or property, the acknowledgement must describe, but need not necessarily establish a value for such property. The evaluation of donated property is the responsibility of the donor. If the value of an item or group of like items exceeds $5000.00, the donor must obtain a qualified written appraisal and he must submit an appraisal summary with the return claiming the deduction.
The written substantiation should also note whether or not the recipient charity provided any goods or services in consideration, in whole or in part, for the contribution and, if so, the documentation must provide a description of the goods or services along with a good-faith estimate of the value of the goods or services provided to the donor. Such a contribution in return for goods or services is referred to as a “quid pro quo contribution,” literally, “this” consideration “for that” contribution. If, on the other hand, the donor received nothing in return for the contribution, the written substantiation should so state.
Quid Pro Quo Contributions
A quid pro quo contribution is a payment made partly as a contribution and partly for goods and services provided to the donor by the charity.
The law requires charities to furnish a disclosure statement to donors for all quid pro quo donations in excess of $75.00. Under section 6115 of the IRS Code, a charitable organization must provide a written disclosure to donors who make a payment “quid pro quo” in excess of $75.00. A penalty may be imposed on charities that do not meet the disclosure requirements for a quid pro quo contribution of more than $75.00.
The required written disclosure statement must:
(1) inform the donor of the amount of the contribution which is deductible for federal income tax purposes. That amount is limited to the excess of any money (or the value of any property other than money) contributed by the donor above the value of goods or services provided to the donor by the charity and
(2) provide the donor with a good-faith estimate of the value of the goods or services that the donor received.
This disclosure/statement may be made in connection with either the solicitation of the contribution or at the time of receipt of the quid pro quo contribution. It must be furnished in writing and be reasonably likely to come to the attention of the donor.
The disclosure statement is not required:
(1) where the only goods or services given to a donor meets the standard for “insubstantial value” or
(2) where there is no donative element involved in a particular transaction with a charity (such as in a typical gift shop sale such as for hats or shirts).
The prevailing basic rule allowing donor deductions only to the extent that the payment exceeds the fair market value of the goods or services received in return still generally applies to all quid pro quo contributions. The $75.00 threshold pertains only to the obligation on the charity to disclose, not to the rule on the deductibility of the contribution.
For additional explanation, contact your tax advisor.
For the purposes of Canadian taxation, gifts by a resident of Canada to an organization that is resident in the United States that is generally exempt from United States tax and that could qualify in Canada as a registered charity if it were resident in Canada and created or established in Canada, shall be treated as gifts to a registered charity; however, no relief from taxation shall be available in any taxation year with respect to such gifts (other than such gifts to a college or university at which the resident or a member of the resident's family is or was enrolled) to the extent that such relief would exceed the amount of relief that would be available under the Cdn Income Tax Act if the only income of the resident for that year were the resident's income arising in the United States. The preceding sentence shall not be interpreted to allow in any taxation year relief from taxation for gifts to registered charities in excess of the amount of relief allowed under the percentage limitations of the laws of Canada in respect of relief for gifts to registered charities.
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