The holiday season is upon us again, and it’s time for our annual reminder about the rules governing deductibility of contributions to charities. This year we have a new twist, as the IRS has finalized regulations proposed in 2008 with respect to substantiation and reporting requirements—with some additional tweaks. This post will focus primarily on the new guidance contained in the final regulations, including new rules with respect to qualified appraisals, clarifications for contributions of clothing and household items, and record keeping requirements for cash contributions. For the rules governing all other contributions, which have remained the same from the proposed regulations issued in 2008, please see our previous post here.
Qualified Appraiser and Qualified Appraisal – Noncash Donations Over $5,000. Beginning on January 1, 2019, all noncash contributions over $5,000 must be appraised by a “qualified” appraiser who meets the new educational and experience requirements contained in the final regulations. The appraiser must have successfully completed professional or college-level coursework in valuing the type of property and must have two or more years of experience in valuing the type of property. Alternately, the appraiser can show that they have earned a recognized appraiser designation for the type of property, which is generally more difficult to earn. The final regulations note that the education may be provided by a generally recognized trade organization. The appraiser must make a declaration in the appraisal of the appraiser’s qualifications, in a way that makes the appraiser’s education and experience verifiable, in appraising the type of property donated.
Further, the final regulations require that the appraisal be conducted in accordance with generally accepted appraisal standards, which are “consistent with the substance and principles” defined by the Appraisal Standards Board of the Appraisal Foundation in the Uniform Standards of Professional Appraisal Practice or USPAP. This requirement does allow for some flexibility in that strict adherence to USPAP document preparation is not required and that other appraisal standards that are acceptable in the industry may still be used provided they are up to the substance and principles of USPAP.
The final regulations also still require a copy of the appraisal be attached to the taxpayer’s return in order for the contribution to be deductible.
Substantiation of Noncash Contributions. The final regulations adopt the requirements of the proposed regulations and make a few clarifications. First, with respect to noncash contributions over $500, the taxpayer must obtain a contemporaneous written acknowledgement as provided under Section 170(f)(8) and also complete a Form 8283 with their tax return. In response to one commentator, the IRS noted that Form 8283 does not satisfy the requirements for a contemporaneous written acknowledgement. To refresh, the contemporaneous written acknowledgement requirements apply to all contributions of $250 or more. To comply, a written acknowledgment must be provided to the donor contemporaneously with the contribution, and state:
- the amount of cash and a description of any property contributed;
- whether the donee organization provided any goods or services in consideration for any contributed cash or property; and, if so,
- description and good faith estimate of those goods or services.
Second, the final regulations also clarify that similar property is treated as a single contribution for the purposes of the $500, $5,000, and $500,000 thresholds for substantiation, but property meeting the $250 threshold is not combined if contributions are made separately during the tax year.
Third, in light of the Crimi case (TC Memo 2013-51) the final regulations do not contain a standard for the reasonable cause exception, due to the fact that the Tax Court stated that a reasonable cause inquiry is a facts and circumstances endeavor and must be judged on a case-by-case basis.
Finally, the final regulations clarify that for any carryover year, the substantiation requirements for all noncash contributions must be met as well. Thus, if a Form 8283 is required or an appraisal is required to be attached to the return, it will be required for all carryover years as well, not just the initial year for which a deduction is claimed.
Substantiation of Cash Contributions. All cash contributions to charity must be substantiated in order to be deductible, though the requirements for substantiation vary depending on the amount of the gift. A cash contribution of less than $250 can be substantiated solely by a bank record or other written communication detailing the name of the tax-exempt organization, the date of the donation and the amount of cash donated. This receipt or writing requirement can be satisfied by a bank statement, a credit card statement, a cancelled check or, in the case of a payroll deduction, by a pay stub or a pledge card detailing the required information. However, it is important to remember that cash contributions of $250 or more also are subject to the contemporaneous written acknowledgement requirements under Section 170(f)(8)—so a cancelled check or similar item alone will not suffice for these contributions.
In response to comments, the final regulations clarify that a contemporaneous written acknowledgement under Section 170(f)(8) could be used to satisfy the receipt or writing requirement for a cash donation provided it also includes the date of the donation, which is not required to be stated on a contemporaneous written acknowledgement. The final regulations also note that a blank pledge card given to a donor to fill out the required information is not by itself sufficient substantiation for the purpose of this requirement.
Lastly, the final regulations state that in the case of Principal Combined Fund Organizations established by executive order to facilitate Combined Federal Campaigns for giving, the CFC name may be used instead of the PCFO and may be treated as the donee organization in order to avoid unduly influencing donors to contribute to PCFOs rather than to other eligible donees.