What are donor acknowledgment and substantiation requirements?
What are the Definitions of Legal Terms Relating to Donor Acknowledgement and Substantiation?
Donor acknowledgement and substantiation scenarios
What is the Colorado Charitable Deduction for Non-Itemizers?
Disclaimer:
These articles, samples, and resources are offered for informational purposes only and should not be construed as professional advice. If used, your organization should tailor samples to best fit the organization’s specific circumstances. We encourage your organization to seek appropriate professional assistance as needed.
Acknowledgement of a donation is a great practice for any contribution, but when is it required by law, and what information is necessary to include? Listed below are three common types of contributions and their requirements.
Please note that noncash contributions, including cars and other property, have many special rules and may require legal expertise. Vehicle Donation rules are outlined in IRS Publication 4302.
Further Resources:
appraisal of property that is in accordance with applicable regulations or guidance and the generally accepted appraisal standards.
When money is received partially as a donation and partially as payment for goods or services. Quid quo pro literally means “something for something” in Latin.
use of any reasonable method for determining the fair market value of goods or services as long as it is done in good faith.
is the amount that property would sell for in a transaction between two willing and knowledgeable parties on the open market. Restrictions on donated items must be calculated in the fair market value amount.
Must include the date, organization’s name, amount of cash contribution, description of non-cash contribution (do not include value), statement declaring if there were goods or services provided and a good faith estimate of their value, if any. An organization does not need to include their EIN tax-exempt number, however many organizations do. Depending on the type of donation, additional information may be required.
donor must have a bank record or receipt from the charitable organization with the organization’s name, date, and amount in order to take a charitable contribution deduction. However, contributions made through payroll deductions as well as lump-sum donations to federations have additional requirements. Please refer to IRS Notice 2006-110: Record-keeping requirements for charitable contributions made through payroll deductions, and IRS Notice 2008-16: Rules for substantiating lump-sum charitable contributions made through the Combined Federal Campaign or a similar program (e.g., a United Way campaign).
Excludes items that are considered to have insubstantial value when either of the following occurs:
membership benefits that are in exchange for annual dues of $75 or less and consist of recurring rights or privileges are considered insubstantial.
a conscious desire to make a gift
goods and services that are not typical outside of a donative context and usually provided by an exempt organization operated exclusively for religious purposes.
must be received by the donor in a timely manner or by the due date of their tax returns. Try to get your acknowledgements out prior to the end of the year or within the month of January.
Acknowledgement of a donation is a great practice for any contribution, but when is it required by law, and what information is necessary to include? See “What are donor acknowledgment and substantiation requirements?” FAQ for more details and definitions of terms. Below you will find scenarios that outline corresponding requirements that a donor or charitable organization must comply with.
A charitable organization is giving away a $50 gift certificate to the first twenty people that donate $500 in the month of September.
Required: Written Disclosure Statement (aka Written Acknowledgement) must be provided by the charitable organization.
Why: Because the donors’ quid pro quo contribution total was more than $75.
Explanation: Since the donors are receiving goods or services for their donation, they may only deduct the amount in excess of the fair market value (FMV) of those goods or services. In this case, donors will only be able to deduct $450 from their federal income taxes.* ($500 contribution – $50 FMV of goods or services) In cases that are not as simple to determine the value, organizations must give a good faith estimate of the value.
Exceptions: A written disclosure is not required if there is generally no donative element involved, if the total payment is less than $75, or the goods or services have insubstantial value.
A written disclosure is also not required when the goods or services meet the criteria for the intangible religious benefit exception, the membership benefits exception, or the token exception.
A man decided to donate $1000 to his favorite charitable organization. He assumes that the organization is a qualified charitable organization, and that he can deduct his contribution from his adjusted gross income accordingly. No goods or services are received for his donation.
Required: Written Disclosure Statement is the responsibility of the donor to request from the charitable organization.
Why: Single contributions of $250 or more must be substantiated by a written acknowledgement from the charitable organization in order for the individual to be able to take a deduction.* Individuals must also retain a bank record or other appropriate record of their contribution.
Explanation: Although it is the donor’s responsibility to request a written disclosure for any donation of $250 or more, the donee organization should automatically send acknowledgement to lessen the burden on the donors. Many best practices indicate that all contributions should be recognized in writing regardless of the amount. An organization can aggregate all donations in one year as long as it provides contemporaneous written acknowledgement of each donation.
*In order to deduct charitable contributions from federal income taxes, the taxpayer must itemize their deductions.
Colorado taxpayers who make charitable contributions and do not itemize their deductions on their federal returns may still subtract part of these contributions from their state income taxes. Non-itemizing taxpayers can subtract amounts exceeding $500 in a year from their state tax liability.
Visit the Colorado Department of Revenue for more information on the charitable contributions subtraction.
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