At Issue
What are the rules when donors mail a check for a “year-end” contribution in December 2015 and want to ensure that they get receipted for a potential income tax deduction in 2015?
Situation
Our friends at Saltwater Christian College (SCC) generally close their offices for a “Christ Break” between Christmas Eve and New Year’s Day. Each year, when they return in January there are – hopefully many – envelopes containing contribution checks in the accumulated mail. Also, they say, some checks are received in the first week of the new year. Virtually all of the checks have a date in late December written in the “Date” line of the check. They ask, “What is the best way to account for what year the check should be recorded and receipted in?”
Rules
Treasury Regulation 1.170A-1(b) says:
“Time of making contribution. Ordinarily, a contribution is made at the time delivery is effected. The unconditional delivery or mailing of a check which subsequently clears in due course will constitute an effective contribution on the date of delivery or mailing. If a taxpayer unconditionally delivers or mails a properly endorsed stock certificate to a charitable donee or the donee’s agent, the gift is completed on the date of delivery or, if such certificate is received in the ordinary course of the mails, on the date of mailing. If the donor delivers the stock certificate to his bank or broker as the donor’s agent, or to the issuing corporation or its agent, for transfer into the name of the donee, the gift is completed on the date the stock is transferred on the books of the corporation. For rules relating to the date of payment of a contribution consisting of a future interest in tangible personal property, see section 170(a)(3) and §1.170A-5.”
Technically, looking at most state laws, the final transfer to charity is not actually considered made until the check clears the charity’s bank. However – pursuant to reg. 1.170A-1(b) above – checks are usually deductible on the date of unconditional mailing or delivery through U.S. Mail. This is an example of a situation where federal law generally supersedes state law. So, as long as the check clears in the normal course of business, the charitable deduction will be allowable in the year the donor mailed or delivered the check. This is true despite the fact donors could hypothetically effect a “stop payment” on the check and thus negate the actual gift.
A great “best practice” is to use the postmark on the envelope as verification of the “date of mailing”. As you are likely aware, a delicate situation can arise when the date written on the check is in the “old year” and the postmark is in the “new year”.
Bottom Line
It might be a great idea to let donors know about the rules concerning “year-end” gifts and what your school’s procedures are with regard to receipting these gifts. In order to ensure that you are in compliance with IRS rules and local laws with regard to activities of this nature, you should have a procedure in place for what the “deadline” might be for 2015 contribution receipting.
Specific questions? Email Dave Moja.
The information provided herein presents general information and should not be relied on as accounting, tax, or legal advice when analyzing and resolving a specific tax issue. If you have specific questions regarding a particular fact situation, please consult with competent accounting, tax, and/or legal counsel about the facts and laws that apply.