A recent tax court case has inspired me to remind our clients of the substantiation rules regarding non-cash charitable contributions. In the court case, the taxpayer claimed significant non-cash charitable contributions with minimal documentation.
Here is the required documentation to claim charitable contributions that meet the Internal Revenue Service standards:
- Donations of money. A bank record or a written communication from the charity is required for every cash contribution. An email confirmation is acceptable.
- Noncash donations worth less than $250. Separate contributions of less than $250 are not subject to the written acknowledgment requirement even if the total sum of multiple contributions to a charity during a tax year equals $250 or more. Taxpayers should always retain a record of all items donated, regardless of value.
- Noncash donations of $500 or more. Taxpayers who claim deductions for noncash donations worth more than $500 must satisfy the contemporaneous written acknowledgment requirement and are also required to file Form 8283, Noncash Charitable Contributions, with their return.
In addition, for charitable contributions of noncash property more than $500 (other than publicly traded securities), the taxpayer must maintain additional reliable records that contain the manner of acquisition of the property, the date such property was acquired, and the cost basis of the property.
- Noncash donations of $5,000 or more. All donations of noncash property with a value of $5,000 or more are subject to the additional requirement under Code Sec. 170(f)(11)(C) that the taxpayer must obtain a qualified appraisal and attach it to his tax return.
- Motor vehicles. Special rules exist for donations of motor vehicles, boats and airplanes. Generally, if a taxpayer donates a qualified vehicle with a claimed fair market value of more than $500, the taxpayer can deduct the smaller of the gross proceeds from the sale of the vehicle by the organization or the vehicle’s fair market value on the date of the contribution. The taxpayer may claim the fair market value at the time of contribution in certain cases, for example if the qualified organization makes a significant intervening use of or material improvement to the vehicle before transferring it or if the qualified organization gives the vehicle or sells it for a price well below fair market value, to a needy individual in furtherance of the organization’s charitable purpose. The recipient organization is required to provide a Form 1098-C for claimed value greater than $500.
It is important to comply with the reporting rules and avoid the potential for additional taxes, penalty and interest.
The team at LB Goodman is here to help you keep more of what you earn. Let us know if you have any questions.