Be Mindful of IRS Donation Requirements, Tax Professionals Warn

A recent article in the Wall Street Journal discussed the trouble taxpayers will sometimes encounter when writing off charitable donations. When donating an amount over $250 to a charity, a donor must provide proof that the donation was provided with no strings attached. For IRS donation requirements, if a thank you note is the type of record provided, it must include the phrase “No goods or services were received in exchange for the contribution” for the note to be deemed acceptable as proof.

Obtaining such proof is essential, as donors are at risk of losing their write-offs and possibly incurring penalties if the documentation is not provided.

Examples of the essential nature of the documentation can be found in two cases in tax court that the IRS won this year. The decisions in these cases have tax professionals worried, as they might mean that extra care might have to be taken when dealing with the charitable contributions of their clients. One of the court cases dealt with a couple in Texas who donated $25,171 in cash gifts to their church. The thank you notes the churches provided were not enough though, and the donation was not classified as a charitable donation and the write-off was in jeopardy.

While many charities provide form letter thank you notes that include the necessary language, some charities do not. Tax professionals warn that large donors are the ones most at risk, as they often receive personal notes from the leaders of the charitable organization that do not include the correct wording. Sometimes it is necessary to as the organizations for an additional letter that meets the requirements of the IRS.

According to tax attorney Neil T. Kawashima, if donors do not receive a letter with the necessary wording, they may request an official receipt from the accounting department of the organization. The official receipt must include several pieces of information: a description of the donation, the date the donation was made, and the assessed value of the donation. In the case of gifts other than cash or securities, an assessment of the value of the donation can be complicated. Art or other donations fall under the “complicated” category.

Those who give to charity are often familiar with the rules governing such donations. They are also made aware that with bigger donations, their risk of audit increases.

The days of uncomplicated proof of donations, found on receipts and other loosely-kept records, are no longer here. Strict documentation and accounting is a requirement when donating to charity.

If you have any questions regarding these, or any other tax issue, please contact your knowledgeable tax professional. It could mean the difference.


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