Make sure your donations are tax deductible

12/1/2014

By Derek W. McAleer, Transitional Director of Administrative Services

Local churches and charities are grateful for the generous support of their donors. Many of those donors assume their gifts are tax deductible. But are they? Assuming the church/charity meets the standards for receiving tax-deductible charitable contributions (and most do), the church must still take two steps to insure the gifts meet IRS standards.

Contemporaneous Acknowledgement

For individual gifts that are more than $250, churches and charities must provide “contemporaneous receipt” acknowledging the charitable gifts. The IRS says the receipt must be provided before the date on which the taxpayer files a return for the year in which the contribution is made, or the due date for filing such a return. If you send a receipt for each gift of $250 or more, you meet this standard. Quarterly receipts and annual receipts can also meet this standard. But if the donor is being audited, and needs you to provide a statement for the gifts of three years ago, you can only provide a copy of what was sent at the time. A statement provided two, three, or more years later is not “contemporaneous” and will not meet this standard. A statement provided March 1 is not valid for those who filed their return in January or February.

Goods and Services

In addition, the receipt must indicate whether the donor received anything in exchange for the gift. If a donor purchases a ticket for a dinner, the tax deductible part of the donation is limited to whatever was paid in excess of the value of the meal. If tickets were $100 each, and the meal was worth $35, then the donation is $65. If nothing was received in exchange for the gift, the receipt must state that plainly. The common statement used is, “No goods and services were provided in exchange for your contribution, other than intangible religious benefits.”

Really?

Yes. A widely publicized case involved a couple who gave their church $6,500. Ten checks of $250 or more comprised $6,100 of this gift. The church did not provide receipts at the time, or annually. The couple was audited. For the audit, the couple got their church to send them a letter stating the gifts (of two years earlier) were tax-deductible contributions. The IRS denied the deduction. On appeal, the Tax Court ruled that the $6,100 was not deductible because no “contemporaneous” receipt was provided, and the church failed to note if any goods or services were provided. Note that both the church and the IRS agreed that the donations had been given. But the IRS concluded that the donations were not tax-deductible, because of the church’s failure to provide appropriate and timely receipts!

What’s the Takeaway?

Your church financial secretary should provide a written receipt at the end of the year, itemizing donations, if not quarterly. That receipt should be sent out in early January for the previous calendar year. That receipt should also list any goods or services that were received by the donor in exchange for the gift, or state clearly that no such goods or services were received. The financial secretary should keep copies of those letters to provide to any donor who is later audited.