Charitable Contribution Substantiation Rules
Toughened for 2007
Beginning this year (2007), cash contributions, regardless of the amount, must be substantiated with a bank record or a written communication from the donee, showing the name of the charitable organization, date and amount of the contribution.
The recordkeeping requirements may not be satisfied by maintaining other written records. Prior to 2007, for cash contributions of $250 or less, a taxpayer needed only keep a contemporaneous written record as verification. But, no longer! This means that unless the charitable organization provides a written communication, cash donations put into a “Christmas kettle,” church collection plate, pass-the-hat collection at youth sporting events, etc., will not be deductible. Donations by debit or credit card can be substantiated by bank records.
These new rules make it easy for the IRS to audit a taxpayer’s charitable contributions by correspondence. They need only request that the taxpayer provide copies of the required substantiation by mail. If he or she is unable to provide it, they can make the appropriate tax, interest and penalty adjustments and send a bill. Most likely, they also will make the charitable contribution audit an automatic companion item for other audit issues.
This comes on top of the new rules for non-cash donations effective after August 17, 2006, where no deduction is allowed for a charitable contribution of clothing or household items unless the clothing or household item is in good used condition or better. Household items include furniture, furnishings, electronics, appliances, linens and other similar items. Food, paintings, antiques, other objects of art, jewelry and gems and collections are excluded from the provision.
Generally, the verification rules for contributions of clothing and household items require that a receipt is obtained from the charity, including its name, date and location of the contribution and a reasonably detailed description of the property. In addition, the donee must keep a record of each item contributed, indicating the name and address of the charity, date and location of the contribution and a description of the property in detail that is reasonable under the circumstances. If the contribution is valued at $250 or more, the acknowledgement from the charity must indicate whether any goods or services were received in return for the contribution and the value of those services. Contributions of property valued at $500 or more must be substantiated by records that also indicate how the property was acquired, the approximate acquisition date and the cost or basis in the property. For contributions totaling $5,000 or more, a qualified appraisal generally is required.
If you have questions regarding how these new rules may affect your specific situation, please call.
E Thomas Associates Inc. is a registered investment advisor in Kentucky.
Dave Smith & Tony King are Registered Representatives of and securities are offered through Dalton Strategic Investment Services, Inc., member FINRA & SIPC. 6408 River's Edge Rd, Greenville, OH 45331
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