IRS Rules About Charitable Organizations & Contributions

As a rule, Americans are generous people, and businesses support many of the charitable organizations in this country. Because the IRS allows deductions for some charitable contributions, businesses become even more generous in prosperous years. In changing up an old saying a bit, “what the IRS gives, the IRS can taketh away,” if you do not follow the rules of giving. Here are some IRS guidelines about charitable organizations and contributions.

Substantiation of Contributions

Just because you may want to give to an organization and they are willing to accept your donation, it does not mean that the IRS will classify the donation as acceptable for a deduction on your tax return. Donors must meet substantiation requirements and charitable organizations must meet disclosure requirements.

A donor can deduct a charitable contribution of $250 or more only if they have received a written acknowledgement from the charitable organization. That acknowledgement must be in the possession of the donor by the earlier ofi:

  • The date the donor files the original return for the year in which they made the contribution, or
  • Including extensions, the due date for filing the return.

The donor is responsible for obtaining the acknowledgement from the charitable organization, and they must maintain a written record of the contribution.

Charity Auctions

The deduction for charity auctions is a little tricky. You can only deduct the amount you pay that is over the current value of the item you purchased at auctionii. You must know that you are paying more than that value. It can become challenging unless the charitable organization publishes reasonable current values for the items in the auction.

If you are donating to a charitable organization item(s) for auction, you can only deduct your tax basis in the item(s). You cannot deduct the current market value or the appreciated value.

Substantiating Noncash Contributions

A charity must provide additional substantiation with respect to noncash contributions, and more substantiation is required for vehicles. Points include:

  • Dispositions of Donated Property – If within three years of the receipt of charitable deduction property, the organization sells, exchanges, or disposes of the property, the organization must file a Donee Information Return, Form 8282. This does not apply if:
    • the property is valued at less than $500, or
    • the property is distributed for charitable purposes
  • Appraisal Summary – For property other than money or publicly traded securities that has a value over $5,000, the donor must get a qualified appraisal of the property.

Quid Pro Quo Contributions

The IRS defines a quid pro quo contribution this wayiii: “This is a payment a donor makes to a charity partly as a contribution and partly for goods or services. For example, if a donor gives a charity $100 and receives a concert ticket valued at $40, the donor has made a quid pro quo contribution. In this example, the charitable contribution part of the payment is $60.”

An organization can use any reasonable method to estimate the fair market value of the contribution if the method is applied in good faith. If the goods or services are not generally available, the organization can use comparable goods or services.

i Substantiation of contributions, IRS.gov

ii Charity auctions, IRS.gov

iii Quid pro quo contributions, IRS.gov

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