Substantiating and Reporting Charitable Contributions: Requirements from the IRS
Effective July 30, 2018, the IRS published final regulations for Substantiation and Reporting Requirements for Cash and Noncash Charitable Contribution Deductions. These updates guide individuals, partnerships, and corporations making charitable contributions on how these contributions should be substantiated and reported in order for them to be legally tax-deductible.
These regulations clarify existing regulations by adding new rules for substantiating charitable contributions, reflecting the enactment of the American Jobs Creation act of 2004 as well as the Pension Protection Act of 2006.
Clarifications on Contemporaneous Written Acknowledgements
Section 170(f)(8) already requires a contemporaneous written confirmation of donations valuing $250 or more in order for that contribution to be considered tax deductible. This written acknowledgment must include:
- the amount of cash contributed and a description of any property other than cash contributed,
- a statement of whether or not the donee organization provided any goods or services in whole or in part for this contribution, and
- a description of any such goods and a good faith estimate of their values, or if the goods or services consist solely of intangible religious benefit, a statement to that effect.
Better Defining a Qualified Appraiser
Section 170(f)(11) lays out the most up-to-date requirements for reporting and substantiating charitable contributions of property. For any noncash charitable contribution claimed for a deduction of $5,000, the taxpayer must obtain a qualified appraisal for the contribution in question. The new regulations provide further clarifications for the terms “qualified appraiser” and “qualified appraisal”:
- The appraisal must meet generally-accepted regulations, guidance, and standards according to the Secretary, such as the Uniform Standards of Professional Appraisal Practice (USPAP) of The Appraisal Foundation.
- The term “qualified appraiser” describes someone who has earned a professional qualification as an appraiser or who otherwise has the minimum education and experience requirements, regularly performs appraisals, and meets any other requirements that may be prescribed by the Secretary.
- The appraiser’s qualification must be verifiable, and they must not have been prohibited from practicing within the last three years before the date of the appraisal.
Furthermore, section 170(f)(11)(D) requires that the qualified appraisal be attached to any tax return claiming a deduction of more than $500,000.
These regulations also provide further guidance for the acceptability of noncash property as charitable contributions and clarify what constitutes proper substantiation of these gifts.
What does this mean?
In order for a charitable gift to be considered truly charitable by the Internal Revenue Service, these regulations must be followed. While these latest regulations are updated on already-existing requirements and not a rewriting of the rulebook, it is nonetheless essential to follow the guidelines carefully in order for deductions for charitable giving to be truly compliant with US tax law.