By Kari Moore, CPA at Jacobson Jarvis & Co PLLC
We are frequently asked by nonprofit organizations about the documentation requirements for fundraising auctions and events. This article is a guide on how to find the answers to key questions about the duties of nonprofit organizations in their dealings with donor gifts. Below is a brief discussion of the most frequently asked questions and links to where you can find answers and more information.
Donations of art, wine, theatre tickets, and other tangible property
Donors may be able to claim a tax deduction for gifts of fine art, wine, tickets (i.e. theatre, opera, sporting events, entertainment, etc.) and other tangible property to be auctioned at a fundraising event. IRS Publication 561 has more information.
Some donated property must have an appraisal to determine the fair market value, such as book collections, fine art, jewelry (gems and precious metals), boats, and real estate. Generally, a donor will need an appraisal for donations of property for which they claim a deduction of $5,000 or more. Please see IRS Bulletin 2006-46 – Guidance Regarding Appraisal Requirements for Non-cash Gifts.
The amount a donor may deduct for a vehicle contribution depends upon what the charity does with the vehicle as reported in the written acknowledgment sent by the charity. Charities typically sell the vehicles that are donated to them. If the charity sells the vehicle, generally the deduction is limited to the gross proceeds from the sale. However, there are certain exceptions, and you can learn more about them in IRS Publication 4303 “Donor’s Guide to Vehicle Donations”.
Donations of Services
No deduction is allowed for the donation of personal or professional services to a charitable organization or the value of time spent volunteering. However while volunteering for a charitable organization a volunteer may be able to take a deduction for travel expenses including air, rail, and bus transportation, out-of-pocket expenses for their car, taxi fares or other costs of transportation. See IRS Publication 526 for more information.
Tax benefits when goods or services are received in exchange for the donation
The IRS limits the amount that can be claimed as a deduction when goods or services are received by the donor in exchange for the donation. For example, if a donor gives a charity $100 and receives a concert ticket valued at $40, the donor has made a quid pro quo contribution. In this example, the charitable contribution part of the payment, that can be a tax deduction, is $60. See IRS Publication 1771 – Charitable Contributions for more information.
Generally, donors must have written documentation to support their tax deduction. Varying levels of documentation are required depending on the value of the donation. If the donor claims:
- $250 or less – written records and a receipt (if practical) from the tax-exempt organization(s) are required to support the deduction.
- More than $250 and up to $500 – written records and a written acknowledgement from the tax-exempt organization(s), as described on the next page, are required to support the deduction.
- More than $500 and up to $5,000 of noncash donations – IRS Form 8283 is required as an attachment to their tax return. In addition, written records and a written acknowledgement from the tax-exempt organization(s) are required to support the deduction.
- More than $5,000 in non-cash contributions – in addition to Form 8283, written records, a written acknowledgement, and a qualified appraisal are required.
See IRS Publication 1771.
Donor Acknowledgement Letter
Tax-exempt organizations generally must provide the donor with an acknowledgement (without stated value of the donated item) to enable donors to claim the tax deduction. The organization is not responsible for determining the fair market value of donated items. A penalty is imposed on a charity that does not provide the required acknowledgement. However, when donors drop off items worth $250 or less at unattended donation locations, an acknowledgement is not practical nor required.
A tax-exempt organization is required to provide written documentation to support the deduction and must include the following information:
- The name, address, and tax ID number of the tax-exempt organization
- Date and location of the gift
- Description (list of items)
- Affirmation that no goods or services were received in exchange for the gift.
A written acknowledgement may be provided at the time the donation is made, or by January 31st of the following year. The written acknowledgement can be either a paper document or in electronic format, such as an e-mail addressed to the donor.
IRS Examples of Written Acknowledgments
Here are some examples from IRS Pub 1771:
“Thank you for your cash contribution of $300 that (organization’s name) received on December 12, 201X. No goods or services were provided in exchange for your contribution.”
“Thank you for your cash contribution of $350 that (organization’s name) received on May 6, 201X. In exchange for your contribution, we gave you a cookbook with an estimated fair market value of $60.”
“Thank you for your contribution of a used oak baby crib and matching dresser that (organization’s name) received on March 15, 201X. No goods or services were provided in exchange for your contribution.”
Detailed rules for contemporaneous written acknowledgments are contained in Section 170(f)(8) of the Internal Revenue Code and Section 1.170A-13(f) of the Income Tax Regulations.
(See Resources below for examples of acknowledgment letters.)
IRS From 8283
For gifts of property over $5,000, a donor may present to the charity IRS Form 8283 to support the donor’s tax deductions. The donor is responsible to prepare the form and the charity’s only obligation is to complete the “Donee Acknowledgement” section. For more information see the IRS Instructions for Form 8283 here.
Written documentation requirement for non-deductible items
Charitable donations must meet specific criteria with the IRS to be tax deductible. The IRS does not require a charitable organization to provide a written acknowledgement of a donation that is not tax-deductible. If an organization receives a non-deductible item, then do not provide a donor acknowledgement that might be used to claim a tax deduction, but you can still thank the donor for the gift. For example, some organizations modify their normal thank you letter to state that the item is not tax deductible but that you appreciate the gift.
About the Author
Kari Moore, CPA is the Tax Manager at Jacobson Jarvis & Co PLLC and has over 10 years of experience working for and with non-for-profit organizations. If you have questions about non-cash donations to your organization or about your not-for-profit tax return Kari can be reached at email@example.com.