| Winter 2008 |
Nonprofit Advisor
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The Importance of Proper Substantiation (And Why You Should Care)
In light of ongoing legislation regarding charitable donations,
it is important for recipient organizations to provide donors with
the required substantiation.
The Basics
The acknowledgements for a gift of $250 or more must come from the receiving
organization and must clearly state that the transaction was a bona fide gift
(and not, for example, a tuition payment). When the gift isn't money, the
acknowledgement should clearly describe what was given, but not state a value.
The receipt also must describe anything the donor received in return for the
gift (except "insubstantial" recognition items), or say clearly that nothing of
value was exchanged.
Your Responsibilities:
Cash (under $250)
No written acknowledgement is required to be provided to a donor. However,
donors are required to maintain a bank record or a receipt, letter or other
written communication from the donee, in order to be allowed a charitable tax
deduction.
Cash ($250 and over)
Provide the donor with a written acknowledgement on or before the date the donor
files an income tax return.
Property (under $5,000)
Provide the donor with a receipt describing the items donated. Note that there
is no requirement to provide an estimate of value to the recipient.
Property ($5,000 and over)
Acknowledge receipt of property by signing IRS Form 8283 (Noncash Charitable
Contributions Form) after the donor has obtained a proper appraisal of the gift
property. It is the donor's responsibility to have the gift appraised and
valued. The organization is required to report to the IRS dispositions of
certain charitable deduction property made within two years after the donor
contributed the property.
Intellectual Property
Provide the donor with initial acknowledgement of the property and, in
subsequent years, inform the donor of the income the property has generated.
Exchanges
If your organization provides the donor with any goods or services in exchange
for the donation, you are required to make a good faith estimate of the value of
the goods and services and inform the donor of this value in a written
acknowledgement.
Fundraising
If your organization raises money by holding special events (e.g., fundraising
dinners, theater parties, etc.) and charges a price substantially greater than
the actual cost, the excess amount represents the purchaser's donation and
should be treated as a cash donation.
Vehicles ($500 and over and used by the recipient for qualified purposes)
Provide written notice certifying the intended use of the vehicle and that it
will not be sold until the completion of such use.
Vehicles ($500 and over sold by the recipient)
Provide IRS Form 1098C confirming the sale price of the vehicle.
Requirements For Vehicle Donations
Federal tax legislation recently changed the substantiation requirements and
deductibility amounts for charitable contributions of vehicles (including boats
and airplanes).
If the vehicle's value is more than $500, the donor must receive a
contemporaneous written acknowledgement from the receiving organization. If the
donee sells the vehicle, without significant intervening use or material
improvement, it must provide acknowledgement to the donor within 30 days of the
sale using IRS Form 1098C.
These rules do not apply if the charity transfers the vehicle to a needy
individual at a price significantly below fair market value and the transfer is
directly related to the charitable purpose of the donee organization of
relieving the poor and distressed who need transportation.
If the donee organization plans to sell the vehicle after a significant
intervening use or material improvement, the donee must provide written
acknowledgement to the donor within 30 days of the contribution that includes:
- A certification of the intended use or material improvement of the vehicle
and intended duration of that use.
- A certification that the vehicle will not be transferred in exchange for
money, other property or services before completion of that use or
improvement.
The acknowledgement rules can be confusing. Please contact us for guidance
on complying with these regulations.
Editor's Note: Bober, Markey, Fedorovich
& Company frequently works with clients on matters such as
this. Please call your partner / manager contact if you would like assistance in this area.
The Nonprofit Advisor is produced quarterly by Bober, Markey, Fedorovich
& Company's Nonprofit Services Team. If you would like additional information about the services that we can provide to nonprofit organizations, please call or email our team leader, Lori A. Sheets, CPA at 330.762.9785 or
lsheets@bobermarkey.com.
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