Donations are often considered the lifeblood for nonprofit organizations. Because donations are usually tax deductible for the donor, it’s not uncommon for people considering making donations to nonprofits—and those running them—to ask about the donor substantiation requirement. Nonprofits should be aware of these requirements.
The Internal Revenue Service long ago put in place rules that lay out particular requirements for individuals to make donations that are tax deductible to charities and other nonprofits.
One such rule is that taxpayers who desire to substantiate a cash deduction—no matter how little the amount—must be meticulous about record-keeping, such that they can produce a bank record or some form of written communication made by the nonprofit organization showing the date of the contribution, the name of the organization, and the date on which the contribution was made. If the amount of the contribution exceeds $250, there are additional requirements for substantiation. Among these are a written acknowledgment of the contribution from the nonprofit, which must include the amount of cash donated, and/or descriptions of non-cash property that has been donated; and a description of goods or services provided in exchange for the contribution, along with a good faith estimate of their value—or, alternatively, an indication that no goods or services were provided (for clarity’s sake). This acknowledgment should be given at the time the donation is made, if possible, because of a requirement that it be “contemporaneous”—though technically as long as the donor has the acknowledgment in their possession on the date they file their taxes, it still passes muster.
Where donations of property are concerned, slightly different rules apply. These rules vary a bit from case to case depending on the value of the gift. But in general the nonprofit needs to acknowledge having received a gift with a value estimated at $250 or higher with a receipt that describes the non-cash property transferred to it. The nonprofit is not charged with the duty of estimating the value of the gift—that tasks lies squarely on the donor’s shoulders. But it does need to specify whether any goods or services were provided to the donor in exchange for the donation, and it must make an estimate of the value of those services or goods it furnished.
Should you need help with issues of donor substantiation, Provident Law’s nonprofit and church attorneys are here to help. We recognize how essential these organizations are to society, and how important it is that they be able to function as efficiently as possible. We stand ready to counsel and serve by providing broad transactional and general counsel services. Contact us to learn more.