When it comes to substantiating charitable contributions, form generally matters. A contribution may be perfectly legitimate, but if you fail to document it properly, you could lose a valuable tax deduction.

Recently, the IRS issued final substantiation regulations that originally were proposed ten years ago. To avoid costly mistakes, it is important to familiarize yourself with the final rules.

Cash gifts

Any cash gift you make, regardless of the amount, must be substantiated with either a bank record or a written communication from the charity (an email will suffice) showing its name, the date and the amount of the contribution.

Eligible bank records include:

• Bank statements;
• Electronic fund transfer receipts;
• Canceled checks (including scanned images of both sides from a bank website); or
• Credit card statements.

Cash gifts of $250 or more require, in addition to a bank record or written communication, a contemporaneous written acknowledgment (CWA) from the charity. The CWA must include both the amount of the contribution and a description and good-faith estimate of the value of any goods or services provided in consideration of the contribution.

In a change from the proposed regulations, the final rules permit donors to obtain a single document from the charity that satisfies both written communication and CWA requirements. You need to obtain this substantiation by the earlier of your tax return’s extended due date or the date you file your return.

Additionally, if you have charitable contributions made automatically via payroll deductions, proper substantiation is met if your W-2 sets forth the amount withheld during the year and a pledge card or other documentation is obtained by the donee that shows the name of the donee along with the name of the charity.

Related Read: “Make Your Charitable Contributions Count Under the Tax Cuts and Jobs Act“

Non-cash gifts

According to the IRS, non-cash contributions less than $250 must be substantiated with a receipt from the charity showing the charity’s name and address, date of the contribution and a description detailed enough that even someone who is not familiar with the property type will recognize it as the property being contributed. The level of detail required depends on the value of the gift and other circumstances. For example, if you donate securities to a charity, the receipt must include the name of the issuer, the type and amount of securities and whether they are publicly traded.

Non-cash contributions of at least $250 and up to $500 require a CWA. And for donations between $500 and $5,000, you must obtain a CWA and file Section A of IRS Form 8283, “Non-cash Charitable Contributions,” with your return. The tax form provides a description of the property and certain other details, including the property’s fair market value and the method of determining value.

For non-cash contributions more than $5,000, you must obtain a CWA, file Section B of IRS Form 8283 and obtain a qualified appraisal of the property (although no appraisal is required for certain property, including publicly-traded securities). Form 8283 must be signed by you, your appraiser and a representative of the charity. For donations over $500,000, you must also attach a copy of the appraisal to your return.

Appraisal rules

Be particularly careful if you are required to get an appraisal. A qualified appraisal is prepared by a qualified appraiser in accordance with generally-accepted appraisal standards. It must be signed and dated no earlier than 60 days before the contribution and no later than the extended due date of your return.

Qualified appraisers must meet certain educational and experience requirements related to valuing the type of property involved. These requirements are satisfied by:

1. Successfully completing certain professional or college-level coursework and gaining two or more years of relevant experience; or
2. Earning a recognized appraiser designation from a professional appraiser organization.

The final regulations list certain individuals who are not qualified, including the donor and donation recipient, appraisers who receive fees tied to the property’s appraised value and certain related parties. However, donors are permitted to obtain multiple appraisals and select the one to use for substantiation purposes.

What is a Qualified Charity?

In order for your contribution to qualify, payments must be made to organization types specifically mentioned by the IRS. These include:

1. A state or other governmental entity, but only if the contribution or gift is made exclusively for public purposes.
2. A corporation, trust, fund or foundation created exclusively for religious, charitable, scientific, literary or educational purposes which has not been disqualified for tax exemption under section 501(c)(3).

Substantiate or lose it

Failure to follow the substantiation rules to the letter, including the selection of an appraiser, can mean the loss of valuable tax deductions. If you are uncertain about the requirements, talk to your ORBA tax advisor.

Sidebar: What to do when you cannot get a receipt

Sometimes it is impracticable to obtain a receipt — for example when you leave clothing or other items at an unattended drop site. In those cases, non-cash gifts under $250 may be substantiated by maintaining “reliable written records” that contain:

• The information that would be required in a receipt (your name and address, contribution date and property description);
• The property’s fair market value on the donation date and the method you used to determine its value; and
• For contributions of clothing or household items, their condition.

The reliability of written records depends on the facts and circumstances, including their proximity in time to your contribution.

For more information, contact Jeffrey R. Green at [email protected] or 312.670.7444. Visit ORBA.com to learn more about our Wealth Management Services.

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