TaxTipsLogo200x200Situation

A married couple, Charles and Kathy, committed to give $200 a month to their alma mater, Saltwater Christian College (SCC). SCC is a public charity under Internal Revenue Code section 501(c)(3) and section 170(b)(1)(A)(ii).   For the 2014 tax year, their contributions totaled $2,400 and no check was more than $200. SCC is not required to give them any type of receipt if each contribution is less than $250. However, it is a best practice for a college/seminary/university to provide an annual statement to all donors. Charles and Kathy should keep copies of cancelled checks as their “backup” for any tax deductions.

Rules

**IRS: A donor must have a bank record or written communication from a charity for any monetary contribution before the donor can claim a charitable contribution on his/her federal income tax return.

From IRS Publication 1771, “Charitable Contributions”:

A donor cannot claim a tax deduction for any single contribution of $250 or more unless the donor obtains a contemporaneous, written acknowledgment of the contribution from the recipient organization. An organization that does not acknowledge a contribution incurs no penalty; but, without a written acknowledgment, the donor cannot claim the tax deduction. Although it is a donor’s responsibility to obtain a written acknowledgment, an organization can assist a donor by providing a timely, written statement containing the following information:

  1. Name of organization
  2. Amount of cash contribution
  3. Description (but not the value) of non-cash contribution
  4. Statement that no goods or services were provided by the organization in return for the contribution, if that was the case
  5. Description and good faith estimate of the value of goods or services, if any, that an organization provided in return for the contribution
  6. Statement that goods or services, if any, that an organization provided in return for the contribution consisted entirely of intangible religious benefits (described later in Publication 1771), if that was the case.

It is not necessary to include either the donor’s social security number or tax identification number on the acknowledgment.

A separate acknowledgment may be provided for each single contribution of $250 or more, or one acknowledgment, such as an annual summary, may be used to substantiate several single contributions of $250 or more. There are no IRS forms for the acknowledgment. Letters, postcards, or computer-generated forms with the above information are acceptable. An organization can provide either a paper copy of the acknowledgment to the donor, or an organization can provide the acknowledgment electronically, such as via an e-mail addressed to the donor. A donor should not attach the acknowledgment to his or her individual income tax return, but must retain it to substantiate the contribution.

Separate contributions of less than $250 will not be aggregated. An example of this could be weekly offerings to a donor’s church of less than $250 even though the donor’s annual total contributions are $250 or more. 

For Our Canadian Friends

Since it is imperative that all the information as set out in section 3501.(1) of the Income Tax Regulations be included on the official tax receipt, the absence of any one of these elements is enough for a donor’s tax credit to be denied, without further discussion and regardless of whether a charity was aware of the requirements or not or any other reason. All information must be clearly and meticulously stated on the official receipt.

Per the ITA, an official receipt must contain the following mandatory information:

  • A statement that it is “an official receipt for income tax purposes”
  • The name of the charity and its Canadian address as recorded with CRA
  • The CRA- assigned business number (BN) which serves as its charity registration number
  • The serial number of the receipt
  • The place or locality where the receipt was issued
  • If the donation is cash, the date on which or the year during which the donation was received
  • The day on which the receipt was issued, if it differs from the day the charity received the donation
  • The name and address of the donor, including, for an individual, his or her first name and middle initial
  • The amount that is: − the eligible amount of a cash donation − description of and the value of the donor’s advantage in respect of the gift
  • The name and website address of the Canadian Revenue Agency (www.cra.gc.ca/charities)
  • The signature of an individual authorized by the charity to acknowledge donations.

Further, if the donation is a gift of property other than cash, it is also mandatory to include:

  • The day on which the donation was received;
  • A brief description of the property;
  • The name and address of the appraiser if an appraisal of the gift has been done;
  • The eligible amount that is the property’s fair market value when the gift was made (despite the donor having elected to claim a different amount in filing his or her income tax return), or the “deemed fair market value” of the property, if applicable.

Bottom Line

Both the IRS and the CRA have recently been involved in “tax court” cases in which their denial of charitable contributions to donors were upheld by the courts on “technicalities” for seemingly minor omissions of required information on donor receipts. Be diligent in this area. The summer can be a good time to “audit” the donor receipts that your institution is providing in order to ensure that those documents are compliant with all applicable tax laws.

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.