Donors must substantiate their charitable gifts to receive income-tax deductions, so a donor-centered nonprofit will accommodate donors’ needs whenever possible.
“The donor is responsible for requesting and obtaining the written acknowledgment from the donee,” the IRS says. Sanctions are possible against nonprofit donees if they don’t help donors with these requirements. Besides, it is considered good service if donors receive their gift receipts promptly.
A handy review of IRS substantiation requirements is available online, courtesy of Conrad Teitell, an acknowledged expert in tax-wise giving. Trusts & Estates has published his recommendations here.
Some of Teitell’s advice (emphasis added), as it pertains to nonprofits (the “donees”):
- “No income tax charitable deduction is allowed for a gift in the form of cash, check or other monetary gift unless the donor substantiates the deduction with a bank record or a written communication from the donee showing the donee’s name, the contribution date and the gift amount.
- “An income tax charitable deduction isn’t allowed for non-cash charitable contributions of less than $250 unless the donor maintains for each contribution a receipt from the donee showing: (1) the name and address of the donee; (2) the date of the contribution; (3) a description of the property in sufficient detail under the circumstances (taking into account the value of the property) for a person who isn’t generally familiar with the type of property to ascertain that the described property is the contributed property; and (4) for securities, the name of the issuer, the type of security and whether the securities are publicly traded.
- “To deduct a gift of $250 or more, (the donor) must have a written receipt from the charity describing (but not valuing) the gift. If any goods or services were given to (the donor) in exchange for (the) gift, the receipt must describe them and contain a good faith estimate of their value. If the charity provided no goods or services in consideration of (the) gift, the written receipt must so state.
- “For a charitable contribution made by payroll deduction, a donor is treated as meeting the substantiation requirements if no later than the date for receipt of substantiation the donor obtains: (1) a pay stub, Form W-2, “Wage and Tax Statement” or other employer-furnished document that sets forth the amount withheld during the taxable year for payment to a donee; and (2) a pledge card or other document prepared by or at the direction of the donee that shows the name of the donee.
- “If a charity receives a gift of over $75 … for which (the donor) received or (was) entitled to a benefit (other than solely an intangible religious benefit), the charity must, in connection with the solicitation or receipt of the gift, give (the donor) a written statement that: (1) informs … that the gift deduction is limited to the excess of any money (and the value of any property other than money) contributed by (the donor) over the value of the goods or services provided by the charity; and (2) provides (donor) with a good faith estimate of the value of the goods or services.”
- The donor must have the receipt in his possession before he files his income tax return. For donors who file their income tax returns early in January, this suggests that nonprofits ensure that acknowledgments are sent immediately.
- “Both (the donor) and the charity may generally disregard token benefits (the donor receives) for a contribution. The IRS has ruled that a charitable gift is fully deductible if it’s made in a fundraising campaign in which the charity informs its donors how much of their payment is a deductible contribution and: (1) the donor receives benefits having a fair market value of $97 or 2 percent of the payment, whichever is less; or (2) the donor gives the charity at least $48.50 and receives a low-cost or token item (for example, a bookmark, mug or T-shirt). The item must bear the charity’s name or logo and cost the distributing charity—or the charity on whose behalf the item is distributed—no more than $9.70.
- “A charity will be penalized for knowingly furnishing a false or fraudulent acknowledgment or knowingly failing to furnish a timely acknowledgment showing the required information.”