The IRS is moving toward stricter enforcement of the rules regarding charitable deductions. In general, you can take a deduction for contributions to charitable organizations. However, in order for a deduction to be allowed certain requirements must be met. One such requirement is that the contribution is made to a qualified charity, as defined in the Internal Revenue Code. The IRS maintains a searchable database of charitable organizations on their website that allows you to obtain information regarding the federal tax status of exempt organizations. Another requirement that must be met is that you must be able to substantiate your contribution. The kind of substantiation required is dependent upon the amount of the contribution.
For any contribution of either cash or property of $250 or more you must have written substantiation from the donee organization and the written substantiation must include the following information:
- Amount of cash and/or a description of any property given;
- A statement indicating whether the donee organization provided any goods or services in consideration for any property received; and
- A description and good faith estimate of the value of any goods or services received, if any, or if no goods and services were received, a statement indicating such.
For contributions of property above $500, you are required to include a description of the property in the return on which the deduction is claimed, in addition to having written substantiation.
A qualified appraisal is required for property contributions above $5,000 in addition to the written substantiation. Additionally, the qualified appraisal must satisfy the requirements set forth in the regulations of the Internal Revenue Code. The regulations require the qualified appraisal be conducted by a qualified appraiser. A qualified appraiser for this purpose is an individual with verifiable education and experience in valuing the property for which an appraisal is performed. The regulations also require that the appraisal include specific information such as detailed information about the contributed property, the appraiser, and a statement that the appraisal is being done for income tax purposes, among other items.
Contributions of publicly traded securities do not require an appraisal. The value of publicly traded securities can be obtained by taking the average of the high and low price on the date of the contribution. However, if a charity provides a value of publicly traded securities in their acknowledgement letter, the value should be verified.
As indicated earlier, the IRS is moving toward stricter enforcement of the rules related to charitable deductions. The IRS has disallowed a deduction where a taxpayer’s written substantiation didn’t include a statement indicating that no goods or services were received by the donee organization. They have also disallowed deductions where an appraisal did not meet the requirements set forth in the regulations. The requirements for written substantiation and qualified appraisals can be difficult for the average taxpayer to navigate.
Substantiation should be received prior to filing the tax return where the related deduction is reported. Requesting proper substantiation at the time of an audit can result in the disallowance of charitable contribution deductions.
The Tax Warriors at Drucker & Scaccetti are well versed in these requirements and we work with our clients every day to ensure that their written substantiation and qualified appraisals meet the IRS guidelines. If you have questions regarding these requirements please contact us via the “Ask A Tax Warrior” button. You can also read our earlier blog post, “Tips on Deducting Charitable Contributions” for more information on this topic. No matter what the tax-related matter, our team of highly skilled consultants is always prepared to assist you.