New Tax Law Changes Affect Charities

WASHINGTON - Charities have a new substantiation requirement for certain contributions that receive on or after January 1, 1994, due to the Omnibus Budget Reconciliation Act of 1993.

To assist charities in complying with these new rules the IRS has developed new Publication 1771, Charitable Contributions- Substantiation and Disclosure Requirements. The IRS said it is mailing this publication to over 500,000 charities in December 1993.

Beginning January 1, charities receiving payments described as "quid pro quo contributions," in excess of $75, must provide a written statement to the donor. A quid pro quo contribution is one in which part of the payment is for goods or services received and part is a contribution.

This statement must give a good faith estimate of the value of the goods and services plus inform the donor that the charitable deduction is limited to the amount of the payment in excess of the value of the goods and services provided. For example, if a person gives a charity $100 and receives in exchange a $40 dinner, the charity must inform the donor in writing that the diner was valued at $40 and only the portion of the payment exceeding the value of the dinner, $60, qualifies as a charitable contribution.

A written statement is not required it the goods or services provided by the organization are de minimis, token goods or services, or an intangible religious benefit.

The responsibility for providing disclosure statements for quid pro quo contributions over $75 rests with the charity. The charity must provide the statement in connection with either the solicitation or the receipt of the contribution. A penalty of $10 per contribution can be imposed on the charity for each failure to provide the required statement.

Charities also need to be aware of a new change affecting contributors. For charitable contributions of $250 or made after Dec. 31, 1993, the donor is not allowed a deduction unless the gift is acknowledged by the charity in writing. Also, the donor must obtain the acknowledgement by the earlier of the date the return is filed or the due date of the return, including any extensions.

The acknowledgement must contain the amount of the cash or check and a description of any noncash property contributed. It must state whether the charity provided any goods or services in return for the contribution. If so, it must also include a description and good faith estimate of the value of the goods or services or, if the goods and services consist solely of intangible religious benefits, a statement to that effect.

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