Wednesday April 24, 2024

1.6.1 Gift Substantiation

Gift Substantiation

Due Date for Substantiation:   The deadline to obtain substantiation documentation is crucial for a donor claiming a charitable deduction.

Recordkeeping and Substantiation for Cash Gifts:   Gifts of cash are substantiated by a receipt from the organization or reliable written records.

Cash Gifts Over $250:   Specific documentation requirements exist for gifts of $250 or more.

Payroll Deduction Substantiation Guidelines:   Specific documentation requirements exist for gifts of $250 or more.

Volunteer Expenses:  A volunteer may deduct expenses that are directly related to his or her volunteer work for a charitable organization.

Charitable Remainder Annuity Trust/Unitrust:  The gift to a CRAT or a CRUT is deductible without a receipt from a charity.

Pooled Income Fund or Charitable Gift Annuity:  For transfers to a pooled income fund or in exchange for a charitable gift annuity, the normal receipt requirements will apply.

Substantiation Considerations for "Similar" Noncash Assets:   Donors using similar noncash assets to make charitable donations must aggregate the value of these gifts for the purpose of complying with the substantiation requirements.

Property Gifts Under $250:   A donor who makes a noncash asset gift valued at less than $250 must obtain a receipt as substantiation for the charitable gift.

Property Gifts Over $250:   For gifts of noncash property valued in excess of $250 but not more than $500, the donor is required to obtain additional substantiation.

Property Gifts Under $500:  Gifts of property under $500 may be deductible, provided the donor is given receipt by the charity.

Property Gifts Over $500:  Noncash gifts over $500 require filing IRS Form 8283.

Property Gifts Over $5,000:  For noncash gifts valued over $5,000, donors are required to meet several special requirements.

Property Gifts Over $500,000:  If a donor makes a charitable contribution valued at over $500,000, he or she will be required to attach additional substantiation to claim a charitable deduction.

Form 8283 Additional Requirements:  Each contributed noncash asset will require a separate Form 8283 from the donor.

Carryover Substantiations:  In some instances, a donor may be unable to claim the full charitable deduction in one year.

Due Date for Substantiation
The deadline to obtain substantiation documentation is crucial for a donor claiming a charitable deduction. A donor must obtain the appropriate substantiation documentation for his or her charitable gifts on or before the earlier of the date the donor files the original tax return or the due date for filing the original tax return for the year in which the contribution was made, including any extensions Sec. 170(f)(8)(C). Reg. 1.170A-13(f)(3). Reg. 1.170A-15(c). This deadline applies to substantiation in all forms, including receipts, records and contemporaneous written acknowledgements.

Recordkeeping and Substantiation for Cash Gifts
Gifts of cash are substantiated by a receipt from the organization or reliable written records. For all cash-type gifts, a donor is required to substantiate the deduction with a bank record or a written communication from the charity. The written communication must come from the charitable organization, show the name of the organization, the date of the contribution and the amount of the contribution. Reg. 1.170A-15(a)(1). An email from the organization may be sufficient for substantiation purposes. Reg. 1.170A-15(b)(3). Gifts of $250 or more also require a "contemporaneous written acknowledgement" from the charity, typically a receipt.

Substantiation in the form of a bank record "includes a statement from a financial institution, an electronic fund transfer receipt, a canceled check, a scanned image of both sides of a canceled check obtained from a bank website or a credit card statement." Reg. 1.170A-15(b)(2). Therefore, a blank pledge card provided from the charitable organization and completed by the donor is likely insufficient substantiation.

Cash Gifts Over $250
Specific documentation requirements exist for gifts of $250 or more. The charity has an obligation to send the donor a receipt for such gifts stating the amount of the gift. Normally, the receipt indicates that the charity provided no goods or services to the donor. Sec. 170(f)(8)(B). To satisfy the requirements of a contemporaneous written acknowledgement, the charity's receipt must contain a description of the property. The writing must state whether any goods or services were provided in consideration of the property. If goods or services were provided, the document must provide a good faith estimated value of the goods or services. If there is a "quid pro quo," that must be stated on the receipt. An exception to the "quid pro quo" requirement is created for "intangible religious benefits." Reg. 1.170A-13(f)(2). Intangible religious benefits are not required to be valued. However, if the charitable organization does provide intangible religious benefits, a brief statement to that effect should be included in the receipt. The donor must receive the receipt prior to filing his or her tax return.

Payroll Deduction Substantiation Guidelines
In Notice 2006-110; 2006-51 IRB 1 (1 Dec 2006), Treasury released guidelines for substantiation of payroll charitable deductions. Under Sec. 170(f)(17) deductions for gifts of cash or by check or payroll deduction require specific substantiation. Generally, there must be a contemporaneous written acknowledgement for gifts of $250 or more. All gifts also require a bank record or written confirmation from the donor to qualify for a deduction.

Because payroll deductions are automatically withdrawn from earnings by the employer, there are different substantiation requirements. To comply with Sec. 170(f)(8) substantiation rules, employees must retain pay stub, Form W-2, "Wage and Tax Statement" or other employer-provided document that contains the amount withheld for charity during the taxable year. Reg. 1.170A-15(d)(1)(i). The donor must also provide a pledge card, or other document prepared by or at the direction of the charity, that indicates the name of the organization. The pledge card or other document must also state that the charitable organization does not provide goods or services in whole or partial consideration for the contribution. Reg. 1.170A-15(d)(1)(ii).

Volunteer Expenses
A volunteer may deduct expenses that are directly related to his or her volunteer work for a charitable organization. For this purpose, the volunteer must maintain records of the expenditures. In addition, the charity should send the volunteer a statement that describes the services rendered and indicates whether any goods or services were transferred by the charity to the volunteer in exchange for his or her efforts. Reg. 1.170A-13(f)(10).

Charitable Remainder Annuity Trust/Unitrust
The gift to a CRAT or a CRUT is deductible without a receipt from a charity. While the remainder interest must be irrevocably committed to a charitable entity, the donor is not required to vest any specific charity with the remainder at the time the gift is created. Therefore, no receipt is required. Reg. 1.170A-15(g). Note that no receipt is required for the charitable deduction, but unless the trust is funded with cash, Form 8283, "Noncash Charitable Contributions," is still required.

Pooled Income Fund or Charitable Gift Annuity
For transfers to a pooled income fund or in exchange for a charitable gift annuity, the normal receipt requirements will apply. The charity should indicate the value of the contribution. Since an income interest is retained with a pooled income fund and an annuity interest is retained with a charitable gift annuity, the charity should show on the receipt the value of the charitable interest. Only the remainder interest in a pooled income fund or the gift interest in a gift annuity qualifies for a charitable deduction. Reg. 1.170A-13(f)(13).

Specimen Gift Annuity Receipt (Insert your donor's numbers)

No goods or services were provided to you in exchange for this gift, except a charitable gift annuity. The gift annuity in the attached deduction form has a total value of $100,000, with an annuity value of $60,000 and a qualified charitable deduction of $40,000.

Specimen Pooled Income Fund Receipt (Insert your donor's numbers)

No goods or services were provided to you in exchange for this gift, except an income stream from a pooled income fund. The pooled income fund in the attached deduction form has a total value of $100,000, with a qualified charitable deduction for the value of the remainder interest of $40,000.

Substantiation Considerations for "Similar" Noncash Assets
Donors using similar noncash assets to make charitable donations must aggregate the value of these gifts for the purpose of complying with the substantiation requirements. Reg. 1.170A-16 (f)(5). The regulations define "similar items of property" as items of the same generic category or type. Reg. 1.170A -13(c)(7)(iii). The regulations provide several category examples, including paintings, jewelry, land, buildings, household appliances and coin collections. Reg. 1.170A -13(c)(7)(iii). If similar items of property are donated in the same taxable year, the donor is required to comply with the appropriate substantiation requirements for the aggregate value of the items.

Clothing and Household Goods
A donor may donate clothing or household goods if at the time of contribution, the item is in good used condition or better and the donor follows the appropriate substantiation requirements for the value of the gift. Reg. 1.170A-18(a)(1), (2). If the value of the contribution is over $500, the items are not required to be in good used condition or better if the donor obtains a qualified appraisal from a qualified appraiser under Reg. 1.170A-17(b)(1), the appraisal conforms to Reg. 1.170A-17(a)(1) and is submitted with the tax return for the year of the contribution and the donor completes Form 8283 (Section B) as described in Reg. 1.170A-16(d)(3). Reg. 1.170A-18(b).

Property Gifts Under $250
A donor who makes a noncash asset gift valued at less than $250 must obtain a receipt as substantiation for the charitable gift. The receipt must contain the name and address of the charitable organization and the date of the contribution. Reg. 1.170A -16(a)(1)(i), (ii). The receipt must provide a sufficiently detailed description of the contributed property so that a person not "generally familiar" with the type of property could ascertain that the property described is the contributed property. Reg. 1.170A -16(a)(1)(iii). If the noncash asset is securities, then the receipt must include the issuer, the type of security and state whether the securities are publicly traded. Reg. 1. 170A-16(a)(1)(iv).

In some situations, a donor may not be able to obtain a receipt. The donor may use an unattended drop-off collection bin for charitable donations, which makes obtaining a receipt challenging. The Service permits donors to use a reliable written record in the place of a receipt in some circumstances. Reg. 1.170A -16(a)(2)(i). The inquiry into the reliability of the written record will be based on the facts and circumstances of the case and the proximity in time to the donation. Reg. 1.170A-16 (a)(2)(ii).

The regulations provide some guidance as to what a reliable written record should include. The written record must include all of the above information that would be contained in a receipt from a charity. Reg. 1.170A-16(a)(2)(iii )(A). The record must also include the fair market value of the property on the date of the donation and the method used for determining the fair market value. Reg . 1.170A-16(a)(2)(iii)(B), (C). If the donated property was clothing or a household item, as defined in Reg . 1.170A-18(c), the condition of the item must be included. Reg. 1.170A -16(a)(2)(iii)(D).

Property Gifts Over $250
For gifts of noncash property valued in excess of $250 but not more than $500, the donor is required to obtain additional substantiation. A contemporaneous written acknowledgement must be obtained from the charity if the donor claims a charitable deduction. Reg . 1.170A-16(b). The document is considered contemporaneous if it is obtained on or before the earlier of: a) the date the donor files the original tax return for the year in which the contribution was made or b) the due date, including any extensions, for filing the original tax return for the year in which the contribution was made. Reg. 1.170A -13(f).

Property Gifts Under $500
The receipt should list the name of the charity, the date of the gift, the city and state where the gift was received, a brief description of the property (but not the value, as that is the donor's responsibility) and a statement that no goods or services were provided by the charity to the donor. Reg. 1.170A-13(b)(1).

In addition to the above information, the donor may want to retain an estimate of the fair market value of the property and an explanation of the methods used to determine the value.

Property Gifts Over $500
Donors contributing noncash assets valued at over $500 but not more than $5,000 must obtain the same documentation for gifts valued over $250 (see above) and include additional substantiation. Reg. 1.170A-16 (c)(1). Individuals, partnerships, S corporations, personal service C corporations or closely held C corporations must also file Form 8283, Section A to substantiate noncash gifts valued over $500 but not more than $5,000. Reg. 1.170A -16(c)(2).

Form 8283 must be filed with the tax return on which the deduction is claimed. Reg. 1.170A-16(c)(2). The Service provides instructions for Form 8283, available at IRS.gov. The regulations also provide clarification as to what is required to complete the form. Reg. 1.170A-16 (c)(3). First, the form must include the donor's name and taxpayer identification number, such as a Social Security Number or employer identification number. Reg . 1.170A-16(c)(3)(i). Second, the form must identify the name and address of the charity. Reg . 1.170A-16(c)(3)(ii). Lastly, the form must include the date the donor made the gift, which, in most cases, would be the date the charity received the property. Reg . 1.170A-16(c)(3)(iii).

Noncash assets come in many varieties. Form 8283, Section A requires a description of the asset, with sufficient detail that a person not generally familiar with the type of property would be able to ascertain that the described property is the contributed property. Reg . 1.170A-16(c)(3)(iv)(A). If the property is real property or tangible personal property, such as household goods, the condition of the property must be described. Reg . 1.170A-16(c)(3)(iv)(B). For securities, the name of the issuer, the type of security and information regarding whether the security is publicly traded must be included on Form 8283. Reg . 1.170A-16(c)(3)(iv)(C).

Regardless of the type of asset, Form 8283 requires the fair market value of the asset on the gift date and a description of the method used to determine the fair market value. Reg . 1.170A-16(c)(3)(iv)(D). The donor must disclose how he or she acquired the asset, whether it was by purchase, inheritance, gift, exchange or some other acquisition method. The donor must also provide an estimated date of acquisition. Reg . 1.170A-16(c)(3)(iv)(E).

An exception for publicly traded securities allows the donor to make a representation that the securities have been held for more than one year. The Service will regard that representation as sufficient for purposes of Form 8283. Reg. 1.170A-16(c)(3)(iv)(E). In the case where the noncash asset was created, produced or manufactured by or for the donor, the approximate date of substantial completion must be included on Form 8283. Reg. 1.170A-16(c)(3)(iv)(E).

Property Gifts Over $5,000
For noncash gifts valued over $5,000, donors are required to meet several special requirements. Donors must fulfill the requirements for noncash gifts valued over $250, which requires the donor to obtain a contemporaneous written acknowledgement that complies with Reg. 1.170A-13(f). Reg . 1.170A-16(d)(1)(i). In addition, a donor must obtain a qualified appraisal prepared by a qualified appraiser. Reg. 1.170A-16(d)(1)(ii).

Publicly traded securities, certain intellectual property, qualified vehicles and certain inventory-type assets are listed in Reg. 1.170A-16(d)(2) as exceptions to the qualified appraisal and Form 8283 requirements. If the asset falls into one of these categories, a qualified appraisal is not required and Form 8283 Section B does not need to be completed. The donor may instead complete Form 8283, Section A to meet the substantiation requirements. Reg . 1.170A-16(d)(2).

A donor will be required to file the form with the return on which the deduction is claimed. For gifts larger than $5,000, Form 8283, Section B must be completed. The completed Section B will include the donor's name and taxpayer identification number, which may be a Social Security Number or employer identification number. Reg . 1.170A-16(d)(3)(i). The charity's name, address, taxpayer identification number, a dated signature and the gift date must be included in Section B. Reg. 1.170A-16(d)(3)(ii).

Information regarding the qualified appraiser is required to be completed on Form 8283, Section B. The name, address and taxpayer identification number must be disclosed. The appraiser must make a declaration on the form and sign and date the form. Reg. 1.170A-16(d)(3)(iii).

The form must include information regarding the noncash asset donated to charity. The fair market value of the noncash asset should be disclosed. Reg. 1.170A-16(d)(3)(iv)(A). There must be a statement with a sufficiently detailed description identifying the property so that a person not generally familiar with the property would understand that the described property is the contributed property. Reg. 1.170A-16(d)(3)(iv)(B). If the property is real property or tangible personal property, a description of the condition of the property is required. Reg. 1.170A-16(d)(3)(iv)(C).

The donor must disclose how he or she acquired the property (e.g., inheritance, gift, bequest or exchange) and the approximate date he or she obtained the property. If the property was created, produced or manufactured by or for the donor, the donor should disclose the date the asset was substantially completed as the date of acquisition. Reg. 1.170A-16(d)(3)(v).

The donor must include the cost basis of the property. Reg. 1.170A-16(d)(3)(vi). If the gift was made through a bargain sale, the donor must disclose this information and the amount received in the transaction. Reg. 1.170A-16(d)(3)(vii). If Form 8283, Section B or the instructions to Form 8283 require any information not listed in the regulation, then the donor must also provide the required information. Reg. 1.170A-16(d)(3)(viii).

Property Gifts Over $500,000
If a donor makes a charitable contribution valued at over $500,000, he or she will be required to attach additional substantiation to claim a charitable deduction. The donor must obtain a contemporaneous written acknowledgement and a qualified appraisal prepared by a qualified appraiser. Reg. 1.170A-16(e)(1). A completed Form 8283 must be filed with the return on which the deduction is claimed. In addition, the donor must attach the qualified appraisal to the tax return on which the deduction is claimed. Reg. 1.170A-16(e)(1)(iv).

The same exceptions for noncash gifts valued over $5,000 apply to noncash gifts over $500,000. A qualified appraisal is not required for gifts of publicly traded securities, certain intellectual property, qualified vehicles and certain inventory-type assets. Reg. 1.170A-16(e)(2). Form 8283, Section B does not need to be completed for this type of property gift. The donor will, however, be required to complete Form 8283, Section A. Reg. 1.170A-16(e)(2).

Form 8283 Additional Requirements
Each contributed noncash asset will require a separate Form 8283 from the donor. Reg . 1.170A-16(f)(2)(i). The forms must be attached to the tax return on which the deduction is claimed. Donors contributing similar items may attach one Form 8283 for the similar items if contributed to the same charity during the same taxable year. Reg. 1.170A-16(f)(2)(ii).

Carryover Substantiations
In some instances, a donor may be unable to claim the full charitable deduction in one year. For most noncash appreciated assets, the donor's charitable income tax deduction is limited to 30% of the donor's adjusted gross income in the year of the gift. In many cases, the charitable deduction will exceed that deduction limit. If the donor is unable to claim the full deduction in the year of the gift, the Service allows the donor to carry forward the charitable deduction for up to five additional years. Reg. 1.170A-10.

If the original charitable gift exceeded $500 in value, the donor must include the same substantiation documentation as required for the original charitable deduction with any tax returns claiming a carryforward deduction. Reg. 1.170A-16(f)(3). If a donor fails to include this substantiation, the Service may disallow the deduction entirely.

Related Topics on Gift Substantiation

1.6.2  Gift Premiums:    Administration of gift records by both donors and charities would be extremely difficult if every item, no matter how small, had to be recorded and recognized.

1.6.3  "Quid Pro Quo" Gifts:    Charities appreciate and frequently honor their donors. In many ways, charities attempt to demonstrate that appreciation through plaques, dinners, conferences and other tangible ways. One of the challenging issues for the Treasury has been how to regulate fairly the many benefits that donors receive from their gifts to and associations with charities.

1.6.4  Property Gifts:    Various types of property require specific forms of substantiation. While the appraiser will document most substantiation requirements, it is useful to understand the general factors that apply to specific properties.

Ney:    In Bruce K. Ney et ux. v. Commissioner; T.C. Summ. Op. 2006-154; No. 10257-05S (19 Sep 2006), donors Bruce and Marina Ney contended that they should receive a charitable deduction for a bargain sale of real property to a conservation charity, even though they did not comply in a timely manner with the appraisal requirements.

Smith:    In Rhett Rance Smith et ux. et al. v. Commissioner; T.C. Memo. 2007-368; Nos. 11902-05, 13225-05, 13226-05, 13227-05, 13228-05 (17 Dec. 2007), the tax court disallowed charitable deductions for gifts of family limited partnerships interests.

Gomez:    In Daniel Gomez et ux. v. Commissioner; T.C. Summ. Op. 2008-93: No. 13167-07S (30 Jul 2008), the taxpayers were members of the Apostolic Assembly, a church body. During 2005, they tithed to the Assembly and gave $6,548.27. Their total charitable deductions claimed on their 2005 IRS form 1040 were $6,885.

Jennings:    In Stanley J. Jennings v. Commissioner; T.C. Memo.2000-366; No. 8249-98 (December 4, 2000), the Tax Court upheld deficiencies asserted by the Service for unsubstantiated charitable contributions.

Schrimsher:    In Randal A. Schrimsher et ux. v. Commissioner; T.C. Memo. 2011-71; No. 945-09 (27 Mar 2011), the Tax Court determined that a claimed deduction of $705,000 would be denied due to a lack of a contemporaneous written acknowledgement.
Bell:    In Bridgett Jeanette Bell v. Commissioner; T.C. Summ. Op. 2011-54; No. 8048-08S (17 Apr 2011), the Tax Court in a summary opinion denied several charitable deductions, but permitted some on the basis that there was sufficient substantiation.
Barck:    In John W. Barck, et ux. v. Commissioner, Summary Opinion 2001-51; No. 3170-99S (5 April 2001), the Tax Court refused to allow the charitable deductions claimed by John and Janie Barck.

Villareale:    In Jolene M. Villareale Commissioner; T.C. Memo. 2013-74; No. 18616-11 (12 Mar 2013), the Tax Court denied deductions for gifts of $250 or more.

Cameron:    Braun Michael Cameron and Twanda B. Cameron supported several charitable entities during 1996 and 1997. Mr. and Mrs. Cameron were the scoutmaster and den mother of Boy Scouts of America Troop #524.

Addis:    In Charles H. Addis, et ux. v. Commissioner; 118 T.C. No.32; No. 6628-00 (10 Jun 2002), the Tax Court refused to allow any charitable deduction for $72,285 in charitable gifts.

French:    In Bayne French et ux. v. Commissioner; T.C. Memo. 2016-53; No. 11715-13 (22 Mar 2016), the Tax Court held a conservation easement deed was not sufficient to comply with the contemporaneous written acknowledgment requirements of Sec. 170(f)(8)(B).

Embroidery Express LLC:    In Embroidery Express LLC et al. v. Commissioner; T.C. Memo. 2016-136; Nos. 7784-11, 6748-11 (20 Jul 2016), the Tax Court denied substantial business and charitable tax deductions.

Izen Jr:    In Joe Alfred Izen Jr. v. Commissioner; 148 T.C. No. 5; No. 28358-12 (1 Mar 2017), the Tax Court denied a $338,080 charitable deduction for the gift of a Hawker-Siddley DH125-400A jet to the Houston Aeronautical Society (Society). The denial was due to the lack of a contemporaneous written acknowledgement (CWA) as required by Sec. 170(f)(12).

Big River Development LP:    In Big River Development LP et al. v. Commissioner; No. 16767-14; T.C. Mcmo. 2017-166 (27 Aug 2017), the Tax Court held an easement deed with signatures by both donor and charity constituted a contemporaneous written acknowledgment under Sec. 170(f)(8)(A). Big River Development, L.P. (LP) acquired a Pittsburgh historic property originally named the Armstrong Cork Building. LP planned to develop the property into luxury apartments.

Wendell:    In Wendell Falls Development LLC et al. v. Commissioner; No. 3494-14; T.C. Memo. 2018-45 (4 Apr 2018), the Tax Court denied a $1.8 million charitable easement deduction. The Court held the property owners received a valuable benefit in exchange for the easement and the value of the real property interest was zero.


Blau:    In Jeff Blau et al. v. Commissioner; No. 17-1266 (D.C. Circuit 2019), the Court held a failure to comply with the charitable gift substantiation rules led to the loss of a $33 million charitable contribution deduction.


Jones:    In Lionel D. Jones v. Commissioner; T.C. Summ. Op. 2004-76; No. 7827-03S (27 May 2004), the Tax Court judge permitted Mr. Jones to take both employee expenses and charitable deductions.

Hill:    In Jerry L. Hill, et ux. v. Commissioner; T.C. Memo. 2004-156; No. 7058-3 (30 Jun 2004), the Tax Court upheld a $130,260 tax deficiency and a $26,052 accuracy penalty.

Donovan:    In Estate of John R. Donovan, Jr. v. United States; No. 04-10594-DPW (26 Apr 2005), the Massachusetts District Court determined that it was appropriate to use the Sec. 7520 tables and methods to value a lottery annuity.

Dowdy:    In Warren McKinnley Dowdy v. Commissioner: T.C. Summ. Op. 2006-111; No. 20836-04S (17 Jul. 2006), the taxpayer operated a "candy store" in Brooklyn, New York and was employed by the New York Times.

Warfield:    In Darin Warfield et al. v. Commisioner; T.C. Summ. Op. 2006-145; No. 16306-05S (13 Sep 2006), the taxpayers had claimed charitable deductions for years 2002 of $5,050 and 2003 of $6,561.

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