Every year during tax season, clients bring us receipts from charities such as Goodwill or Saint Vincent de Paul for noncash donations. They attach the lists of clothing and goods donated with the thrift shop values filled in as we have asked them to do in the past. But, because of current regulations, this form of documentation is no longer acceptable for donations that are valued at $250 or more. So what are the requirements?
- Noncash donations of less than $250 require a written receipt from the organization or taxpayer generated written records in the case of items dropped off at the charity during the hours the organization is closed. The receipt or record must contain the name and address or the charity, the date and location where the items were donated, the description of the donated items, and the method used to value the property. (This is similar to the prior requirements)
- Noncash donations receipts that are valued over $500, are required to indicate how the property was acquired, e.g. purchase, gift, or inherited, and the cost or other basis of the property along with the same requirements mentioned previously for donations of $250 or less.
- Single donations of $250 or greater requires even further documentation. As with cash donations of $250.00 or greater, these contributions now must contain a contemporaneous written acknowledgment from the organization that includes a description of the items, a statement whether or not the organization provided any goods or services, and the value of the goods or services received by the taxpayer in return for the donation. Example: A taxpayer wants to deduct over $5,000 in expensive audio equipment and instruments donated to a charity. A blank receipt with the date and signature of the person from the organization who received the item is no longer valid. The taxpayer must acquire a letter or statement from the charitable organization, which describes the donation, that the audio equipment is worth $5,000 and that no goods or services were provided in exchange for that donation. Without this documentation, the taxpayer is limited to a deduction that is less than $250.
- Single donations over $5,000 require a qualified appraisal. If the deduction is greater than $500,000, the appraisal must be attached to the return.
IRS ACTIONS
Two recent court decisions Tax Court decisions illustrate that the IRS is taking this substantiation requirement seriously. (TC Memos 2014-203 and 2015-71) In both cases, both taxpayers attempted to deduct noncash donations in excess of $20,000, but had little, or no substantiation. The courts sided with the Internal Revenue Service’s assessment of additional tax, plus substantial penalties, and interest.
Problem Solving
So how do you get the organization to fulfill the substantiation requirements for noncash donations of $250 or more, when the person receiving the goods generally wants to do nothing more than hand you a blank receipt with nothing more than your name, date, and the signature of the representative receiving the items? My suggestion is for you to do their homework for them ahead of time.
- Type out a written document that contains a detailed list of the items donated
- Take it one step further by taking photographs of the items.
- At the bottom of that list, put in a written statement that says something like the following: “I acknowledge that the charitable organization (Name of charity) has received the following items listed above from the taxpayer (Your Name) on this date, at this location. The charity has not provided any goods or services in return for these items donated.”
- Leave a place on this list for the person acting as a representative of the organization to sign, date, and print their name. Also, have this person write see attached on the receipt they normally give you for donated goods.
If you have the receipts but did not fulfill these substantiation requirements, don’t despair. You have until the due date of the return, including extensions, to go back to the organization and get a proper receipt from them.