The Catholic University of America

Summary of Federal Laws

Tax

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Tax Issues Related to Donations

Donee Responsibilities with Respect to Charitable Contributions
(as modified by the Pension Protection Act of 2006)
26 USC 170

I.R.C. § 6115 provides that charities (donees) must provide timely written disclosure statements to contributors (donors) who make payments described as "quid pro quo" contributions in excess of $75. See Quid Pro Quo Rules.

I.R.C. § 170(f)(8)(A) provides that no deduction will be allowed for the donor under I.R.C. § 170 for a contribution of $250 or more (whether in cash or property) unless the donor has a contemporaneous written acknowledgment from the charity (donee) substantiating the contribution. See Substantiation and Disclosure Provisions. See changes to this provision effective Jan. 1, 2007 which requires the donor to keep records of all monetary contributions if they wish to claim a deduction.

Actions that must be taken by the donee in the following situations are italicized.

Quid Pro Quo Contributions in Excess of $75

A charitable organization must provide a written disclosure statement to donors of a quid pro quo contribution in excess of $75. A quid pro quo contribution is a payment made to a charity by a donor, partly as a contribution and partly for goods or services provided to the donor by the charity. 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 portion of the payment is $60. Even though the part of the payment available for deduction does not exceed $75, a disclosure statement must be filed because the donor's total payment (quid pro quo contribution) exceeds $75.

The required written disclosure statement must:

  1. inform the donor that the amount of the contribution that is deductible for federal income tax purposes is limited to the excess of any money (and the value of any property other than money) contributed by the donor over the value of goods or services provided by the charity; and

  2. provide the donor with a good faith estimate of the value of the goods or services that the donor received.

The charitable organization must furnish the disclosure statement in connection with either the solicitation or the receipt of the quid pro quo contribution. If the disclosure statement is furnished in connection with a particular solicitation, it is not necessary for the organization to provide another statement when the associated contribution is actually received.

No disclosure statement is required when:
  • The goods or services given to a donor meet the standards for "insubstantial value." For tax year 2006, insubstantial value is defined as $8.60, and a token gift that costs the organization $7.40 or less does not need to be reported as goods or services received, as long as the value of the contribution is at least $43.00.1

  • There is only an intangible religious benefit provided to the donor. The intangible religious benefit must be provided to the donor by an organization organized exclusively for religious purposes, and must be of a type that generally is not sold in a commercial transaction outside the donative context.

A penalty is imposed on a charity that does not make the required disclosure in connection with a quid pro quo contribution of more than $75. The penalty is $10 per contribution, not to exceed $5,000 per fund-raising event or mailing. The organization can avoid the penalty if it can show that the failure was due to reasonable cause.

1 For taxable years beginning in 2006, the $ 5, $ 25, and $ 50 guidelines in section 3 of Rev. Proc. 90-12, 1990-1 C.B. 471 (as amplified and modified), for disregarding the value of insubstantial benefits received by a donor in return for a fully deductible charitable contribution under § 170, are $ 8.60, $ 43, and $ 86, respectively. In the context of a larger donation, insubstantial value is defined as when the fair market value of a benefit received in return for a contribution is not more than 2% of the contribution or $86 (for tax year 2006), whichever is less. Revenue Procedure 2005-70, 2005 IRB LEXIS 467; 2005-47 IRB 979. (Nov. 21, 2005

Pension Protection Act of 2006 and substantiation rules: Recordkeeping Requirements for Donors: This change will only affect taxpayers who itemize their taxes: The new law is effective for most taxpayers for contributions made after Jan. 1, 2007. The change (Section 1217) requires taxpayers claiming a charitable deduction to maintain records of all monetary contributions. This might be a cancelled check, a print out of an electronic banking report, or a receipt from the charitable organization showing the date and amount of the contribution. The text of the new law is as follows:
 
SEC. 1217. MODIFICATION OF RECORDKEEPING REQUIREMENTS FOR CERTAIN CHARITABLE CONTRIBUTIONS.
(a) RECORDKEEPING REQUIREMENT.--Subsection (f) of section 170, as amended by this Act, is amended by adding at the end the following new paragraph:
"(17) RECORDKEEPING.--No deduction shall be allowed under subsection (a) for any contribution of a cash, check, or other monetary gift unless the donor maintains as a record of such contribution a bank record or a written communication from the donee showing the name of the donee organization, the date of the contribution, and the amount of the contribution.". (b) EFFECTIVE DATE.--The amendment made by this section shall apply to contributions made in taxable years beginning after the date of the enactment of this Act. (Editor's note: The law was signed August 17, 2006)
All Charitable Contributions of $250 or More (NB See above for changes effective in 2007)
 

Donors taking a deduction under I.R.C. § 170 are required to obtain contemporaneous written substantiation for a charitable contribution of $250 or more. To be "contemporaneous" the written substantiation must generally be obtained by the donor no later than the date the donor actually files a return for the year the contribution is made. If the donee provides goods or services to the donor in exchange for the contribution (a quid pro quo contribution), this written substantiation (acknowledgment) must include a good faith estimate of the value of the goods or services. The donee is not required to record or report this information to the IRS on behalf of a donor. The donor is responsible for requesting and obtaining the written acknowledgement from the donee. Although there is no prescribed format for the written acknowledgment, it must provide sufficient information to substantiate the amount of the contribution. If the donation is in the form of property, the acknowledgement must describe, but need not value, the property. Valuation of the donated property is the responsibility of the donor.

Partial Interest in Tangible Donated Property (Section 1218) effective August 17, 2006

Under the Pension Protection Act of 2006, when tangible personal property, such as artwork, is donated on a fractional basis, (perhaps part of the year) for the charitable deduction to be valid, the charity must take complete ownership of the donated item within 10 years of the donation, or upon the death of the donor, whichever comes first. The organization must take physical possession of the property at least once during the 10 year period and use the property for the exempt purpose (for example, display the artwork). The text of 1218 is as follows:

o) SPECIAL RULES FOR FRACTIONAL GIFTS.--
"(1) DENIAL OF DEDUCTION IN CERTAIN CASES.--
"(A) IN GENERAL.--No deduction shall be allowed for a contribution of an undivided portion of a taxpayer's entire interest in tangible personal property unless all interest in the property is held immediately before such contribution by--
"(i) the taxpayer, or
"(ii) the taxpayer and the donee.
"(B) EXCEPTIONS.--The Secretary may, by regulation, provide for exceptions to subparagraph (A) in cases where all persons who hold an interest in the property make proportional contributions of an undivided portion of the entire interest held by such persons.
"(2) VALUATION OF SUBSEQUENT GIFTS.--In the case of any additional contribution, the fair market value of such contribution shall be determined by using the lesser of--
"(A) the fair market value of the property at the time of the initial fractional contribution, or
"(B) the fair market value of the property at the time of the additional contribution.
"(3) RECAPTURE OF DEDUCTION IN CERTAIN CASES; ADDITION TO TAX.--
"(A) RECAPTURE.--The Secretary shall provide for the recapture of the amount of any deduction allowed under this section (plus interest) with respect to any contribution of an undivided portion of a taxpayer's entire interest in tangible personal property--
"(i) in any case in which the donor does not contribute all of the remaining interest in such property to the donee (or, if such donee is no longer in existence, to any person described in section 170(c)) before the earlier of--
"(I) the date that is 10 years after the date of the initial fractional contribution, or
"(II) the date of the death of the donor, and
"(ii) in any case in which the donee has not, during the period beginning on the date of the initial fractional contribution and ending on the date described in clause (i)--
"(I) had substantial physical possession of the property, and
"(II) used the property in a use which is related to a purpose or function constituting the basis for the organizations' exemption under section 501.
"(B) ADDITION TO TAX.--The tax imposed under this chapter for any taxable year for which there is a recapture under subparagraph (A) shall be increased by 10 percent of the amount so recaptured.
"(4) DEFINITIONS.--For purposes of this subsection--
"(A) ADDITIONAL CONTRIBUTION.--The term 'additional contribution' means any charitable contribution by the taxpayer of any interest in property with respect to which the taxpayer has previously made an initial fractional contribution.
"(B) INITIAL FRACTIONAL CONTRIBUTION.--The term 'initial fractional contribution' means, with respect to any taxpayer, the first charitable contribution of an undivided portion of the taxpayer's entire interest in any tangible personal property.".

Non-Cash Contributions - IRS Form 8283 and Form 8282

The donor must also file Form 8283 if the amount of the donor's deduction for all non-cash gifts is more than $500.

The donor must complete and list in Section A of Form 8283 only items (or groups of similar items) for which the donor claimed a deduction of $5,000 or less, as well as certain publicly traded securities even if the deduction is over $5,000.

Section B of Form 8283 (Appraisal Summary) must be completed only for items (or groups of similar items) for which the donor claimed a deduction of more than $5,000 per item or group (except contributions of certain publicly traded securities that are only listed in Section A). The donor and/or appraiser must complete Part I (Information on Donated Property), Part II (Taxpayer [Donor] Statement), and Part III (Declaration of Appraiser), as required and applicable. The donee needs to complete Part IV (Donee Acknowledgement) to indicate its receipt of the donated property as described by the donor in Section B, Part I. The donee also affirms that if it sells, exchanges, or otherwise disposes of the property received in this category within three* years after the date of the receipt, the donee will file Form 8282 (Donee Information Return) with the IRS and give the donor a copy of that form. As such, appropriate recordkeeping methods should be in place to trigger a filing of Form 8282 when property received in this category is disposed of within that three-year period. Good donor-donee relations might ordinarily include advising a donor of this intention (if it is known) at the time of the donation.

In addition to the requirements noted above, the donee must indicate on Form 8223, Section B, Part IV, whether it intends to use the donated property in this category (non-cash contributions of more than $5,000) for an "unrelated use." Note that if contributed tangible personal property is put to an unrelated use by the charity (a use other than one related to the exempt purpose or function of the charitable organization), the amount of the donor's deduction attributable to long-term capital gain may be affected. See 26 C.F.R. § 1.170A-4. Generally, a donor can treat contributions of tangible personal property as being put to a related use by the donee if: the donor establishes that fact (i.e., the donee confirms the related use by letter to the donor); or if it is reasonable at the time of the contribution to anticipate that the property will be put to a related use. See 26 C.F.R. § 1.170A-4(b)(3)(ii). For example, if a painting is contributed to the university and is used for educational purposes (study by art students or hung in a hallway), the use is a related use. However, if the painting is sold within three years and the proceeds used by the university [even if still] for educational purposes, the use [sale] of the property is an unrelated use. If, however, the painting is used for a related use and sold more than three years after the donation, the proceeds are not treated as unrelated income for the Donee institution and there is no impact on the Donor's contribution. See 26 C.F.R. § 1.170A-4(b)(3)(i). Note that if, for example, a set or collection of books is donated to the university and made part of the library, the use of the set or collection is still a related use if the university sells or otherwise disposes of only an insubstantial portion of the set or collection. See 26 C.F.R. § 1.170A(b)(3)(i).

** Changes made by the Pension Protection Act of 2006: Under this new law, (see pages 300-301 of the Joint Committee on Taxation Report ) if the charitable organization does dispose of donated tangible personal property with a claimed value of $5,000 or more within three years of the donation, there will be no adjustment to the tax basis if the donee organization makes a certification to the Secretary, by written statement signed under penalties of perjury by an officer of the organization, which certifies that the use of the property by the donee was related to the purpose or function constituting the basis for the donee's exemption under section 501, and "(II) describes how the property was used and how such use furthered such purpose or function, or "(ii) which-- "(I) states the intended use of the property by the donee at the time of the contribution, and "(II) certifies that such intended use has become impossible or infeasible to implement." This provision applies to contributions made after September 1st, 2006.

Questions and Answers:

Q. Can the donor put restrictions on the use and display of a piece of art?

A. If he/she does so, then for the IRS purposes, technically the University has not received full title and possession of the gift until such time as the conditions expire. This is a tax issue to be resolved between the owner and his tax advisor. It is  recommended that a donor have his/her own indpendent tax advisor.

Q. How does the university determine the fair market value of goods and services provided by the university to a donor?

A. An organization may use any reasonable method to estimate the fair market value of goods or services it provided to a donor, as long as it applies the method in good faith. The organization may estimate the fair market value of goods or services that generally are not commercially available by using the fair market value of similar or comparable goods or services. Goods or services may be similar or comparable even if they do not have the unique qualities of the goods or services being valued.

Q. Is there a specific form that I must use to acknowledge the gift?

A. Although there is no prescribed format for the written acknowledgment, the university must provide enough information to substantiate the amount of the contribution. Letters, postcards or computer-generated forms may be acceptable. The acknowledgment does not have to include the donor's social security or tax identification number. It must, however, provide sufficient information to substantiate the amount of the deductible contribution. The acknowledgment should note the amount of any cash contribution. However, if the donation is in the form of property, then the acknowledgment must describe, but need not value, such property. Valuation of the donated property is the responsibility of the donor. The written substantiation should also note whether the donee organization provided any goods or services in consideration, in whole or in part, for the contribution and, if so, it must provide a description and good-faith estimate of the value of the goods or services. If, on the other hand, the donor received nothing in return for the contribution, the written substantiation must so state. If the goods and services fall under the definition of "insubstantial value" (noted above), then the form may state that no goods or services were received.

Q. Should I provide a written or verbal estimate to the donor on the value of property donated?

A. The IRS does not require the donee to put a value on the property, and in specific instances (gifts over $5,000) providing a value is prohibited by the requirements of the Internal Revenue Code. When the value of the property donated is over $5,000, a qualified appraisal may be required, and the donee may not be the appraiser.2

For gifts of less than $5,000, the law allows but does not require the donee to suggest a fair market value for a non-cash gift. The specific statutory language relating to the written acknowledgment that a donor must obtain to claim a deduction for gifts of $250 or more reads as follows: "The amount of cash and a description (but not value) of any property other than cash contributed."3 The Code of Federal Regulations interpreting the same statutory provision reads in relevant part as follows: "The amount of cash the taxpayer paid and a description (but not necessarily the value) of any property other than cash the taxpayer transferred to the donee organization."4 As the law is not definite for gifts under $5,000, the party accepting the donation should follow university policy when accepting donations of gifts in kind. Donors may be referred to IRS Publication 561, Determining the Value of Donated Property, as well as IRS Publication 526, Charitable Contributions.

Q. What is the time frame for acknowledging a gift?

A. When a donor makes a gift of $250 or more, and wishes to take a tax deduction on that gift, the donor is under an obligation to obtain the acknowledgment no later than the date the donor actually files a return for the tax year in which the contribution was made. If the return is filed after the due date or extended due date, then the substantiation must have been obtained by the due date or extended due date.

If the gift involved a quid pro quo contribution, then the time frame may be more stringent. When the contribution falls under the category of a quid pro quo contribution of $75 or more (see above) the IRS takes the position that the donee must provide the disclosure statement at the time the solicitation is made, or at the time the donation is received. See the 1997 EO CPE Text at page four.

On the other hand, Joseph Irvine, tax counsel for Ohio State University, questions whether or not this more stringent time frame is really required. Joe notes as follows:

It is clear that a donor, regardless of the type of contribution, does not need to obtain a receipt until filing his or her tax return. 1.170A-1(h)(4)(i) states: For purposes of section 170(a), a taxpayer may rely on either a contemporaneous written acknowledgment provided under section 170(f)(8) and section 1.170A-13(f) or a written disclosure statement provided under section 6115 for the fair market value of any goods or services provided to the taxpayer by the donee organization. IRC 170(f)(8) also defines "contemporaneous" the same way (i.e., filing the tax return).

What is less clear is when a donee organization must issue the receipt for a quid pro quo contribution. The IRS CPE text cited requires issuance no later than the time of the contribution. The CPE is not authoritative and only expresses the IRS view. It is apparently based on the language in 6115 that says: "...in connection with the solicitation or receipt of the contribution, provide a written statement... ." The IRS reads "in connection with" to mean at the same time. With the specific reference in 170(f)(8) to the timing of the receipt, one could argue that "in connection with" should be interpreted as meaning contemporaneous. However, 1.170A-1(h)(4)(i) does differentiate the written acknowledgement from the written disclosure statement. (I think most charities and practitioners consider them to be the same thing.) Why would the donee be required to provide the disclosure prior to the time the donor is required to obtain it? Given the specific reference to time in 170(f)(8) and the general reference in 6115, using the general rules of statutory interpretation, the specific would control (but according the regulation we are technically talking about two different documents; however, the code makes no distinction between the two and I doubt Congress intended the two to be seen as different). So I think one can argue that "in connection with" should have the same meaning as "contemporaneous." (posted with permission of Joseph Irvine, from an email dated August 3, 2006).

Resources

 

Chief Counsel Advice: When an appraisal must be performed, From 8283 and the appraisal must be signed by the individual appraiser, not the firm. See chief counsel advice (ECC 20102202).

Information on Donated Property for Charitable Organizations:
IRS web page providing information about filing requirements of charities that receive charitable contributions of donated property. Beginning with the 2008 tax return (filed in 2009) organizations that receive donated property will have to file Schedule M with the 990. Also on this web page there is a summary of the other reporting requirements , such as the written acknowledgment for a charitable contribution of $250 or more, the written disclosure statement for a quid pro quo contribution, Form 8282, and 8899, as well as forms for vehicle donations.

NACUANOTES Dec. 19, 2006 The Pension Protection Act of 2006: Charitable Giving and Reform Measures Impacting Colleges and Universities: This is an excellent resource that gives an overview of all sections of this new law that impact colleges and universities, including the provisions on charitable substantiation. Many helpful hyperlinks included.

IRS Forms, Publications and Notices

For further information, see IRS Publication 1771, (rev.7/13) Charitable Contributions-Substantiation and Disclosure Requirements, Form 8283 and Instructions, and IRS Publication 526, Charitable Contributions. Donors may be referred to Publication 561, Determining the Value of Donated Property, as well as to the other documents listed above.

Notice 2006-96: Guidance on "qualified appraisal" and "qualified appraiser". New definitions of these terms, per the Pension Protection Act of 2006.

2 26 C.F.R. § 1.170A-13(c)(5)(iv)(c).

3 I.R.C. § 170(f)(8)(B)(i).

4 26 C.F.R. § 1.170A-13(f)(2)(i).

* The Pension Protection Act of 2006 changed the form 8282 disposition reporting requirement from two years till three for all forms 8282 filed after September 1, 2006.

 

CCR updated CFR links 5/21/15

updated MLO 12-11-15