IRS News Release  
January 03, 1995

Charities and Donors Reminded
of Tax Law Changes

WASHINGTON - This is a reminder to charities and donors that new substantiation and disclosure requirements, imposed by the Omnibus Budget Reconciliation Act of 1993, apply to certain contributions received on or after January 1, 1994.

Beginning January 1, 1994, 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 received and inform the donor that the charitable deduction is limited to the amount of the payment in E the value of the goods and 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 dinner 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 if 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 contribution can be imposed on the charity for each failure to provide the required statement.

Charities also need to be aware of a change affecting contributors. For charitable contributions of $250 or more made after December 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. If they have not yet done 60, charities should assist their donors in complying with this provision by preparing acknowledgements of 1994 contributions as soon as possible, as some affected donors may wish to file returns shortly after January 1, 1995.

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 did or did not provide any goods or services in return for the contribution. If goods or services were provided, the acknowledgement 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.

To assist charities in complying with these rules, the IRS has developed Publication 1771, Charitable Contributions - Substantiation and Disclosure Requirements. The IRS mailed this publication to over 500,000 charities in December 1993. A copy of Publication 1771 is attached.


UNDER THE NEW LAW, CHARITIES WILL NEED TO PROVIDE NEW KINDS OF INFORMATION TO DONORS. Failure to do so may result in denial of deductions to donors and the imposition of penalties on charities.

Legislation signed into law by the President on August 10, 1993, contains a number of significant provisions affecting tax-exempt charitable organizations described in section 501(c)(3) of the internal Revenue Code. These provisions include: (I) new substantiation requirements for donors, and (2) new public disclosure requirements for charities (with potential penalties for failing to comply). Additionally. charities should note that donors could be penalized by loss of the deduction if they fail to substantiate. THE SUBSTANTIATION AND DISCLOSURE PROVISIONS APPLY TO CONTRIBUTIONS MADE AFTER DECEMBER 31, 1993.

Charities need to familiarize themselves with these tax law changes in order to bring themselves into compliance. This Publication alert you to the new provisions affecting tax-exempt charitable organizations. Set forth below. are brief descriptions of the new law's key provisions. The internal Revenue Service plans to provide further guidance in the near future.


Documenting Certain Charitable Contributions.-Beginning January 1. 1994, no deduction will ill be allowed under section 170 of the Internal Revenue Code for any charitable contribution of $250 or more unless the donor has contemporaneous written substantiation from the charity In cases we here the charity has provided goods or services to the donor in exchange for making the contribution this contemporaneous written acknowledgement must include a good faith estimate of the value of such goods or services. Thus. taxpayers may no longer rely solely on a canceled check to substantiate a cash contribution of $250 or more.

The substantiation must be "contemporaneous." That is, it must be obtained by the donor 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. The responsibility for obtaining this substantiation lies with the donor, who must request it from the charity. The charity is not required to record or respond this information to the IRS on behalf of donors.

The legislation provides that substantiation will not be required if, in accordance with regulations prescribed by the Secretary, the charity reports directly to the IRS the information required to be provided in the written substantiation. At present, there are no regulations establishing procedures for direct reporting by charities to the IRS of charitable contributions made in 1994. Consequently, charities and donors should be prepared to provide/obtain the described substantiation for 1994 contributions of $250 or more.

There is no prescribed format for the written acknowledgement. For example, letters postcards or computer-generated forms may be acceptable. The acknowledgement 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 acknowledgement should note the amount of any cash contribution. However, if the donation is in the form of property, then the acknowledgement 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, must provide a description and good-faith estimate of the value of the goods or services. In the new law these arc referred to as "quid pro quo contributions."

Please note that there is a new requiring charities to furnish disclosure statements to donors for such quid pro quo donations in excess of $75. This is addressed in the next section regarding Disclosure By Charity.

If the goods or services consist entirely of intangible religious benefits, the statement should indicate this, but the statement need not describe or provide an estimate of the value of these benefits. "Intangible religious benefits" are also discussed in the following section on Disclosure By Charity. If, on the other hand, the donor received nothing in return for the contribution, the written substantiation must so state.

The present law remains in effect that, generally. if the value of an item or group of like items exceeds $5,000, the donor must obtain a qualified appraisal and submit an appraisal summary with the return claiming the deduction.

The organization may either provide separate statements for each contribution of $250 or more from a taxpayer, or furnish periodic statements substantiating contributions of $250 or more.

Separate payments are regarded as independent contributions and are not aggregated for purposes of measuring the $250 threshold. However, the Service is authorized to establish anti-abuse rules to prevent avoidance of the substantiation requirement by taxpayers writing separate smaller checks on the same date.

If donations are made through payroll deductions, the deduction from each paycheck is regarded as a separate payment.

A charity that knowingly provides false written substantiation to a donor may be subject to the penalties for aiding and abetting an understatement of tax liability under section 6701 of the Code.


Beginning January 1, 1994. under new section 6115 of the Internal Revenue Code, a charitable organization must provide a written disclosure statement to donors who make a payment, described as a "quid pro quo contribution," in excess of $75. This requirement is separate from the written substantiation required for deductibility purposes as discussed above While, in certain circumstances, an organization may be able to meet both requirements with the same written document, an organization must be careful to satisfy the section 6115 written disclosure statement requirement in a timely manner because of the penalties involved.

A quid pro quo contribution is a payment made partly as a contribution and partly for goods or services provided to the donor by the charity. An example of a quid pro quo contribution is where the donor gives a charity $100 in consideration for a concert ticket valued at $40. In this example $60 would be deductible. Because the donor's payment (quid pro quo contribution) exceeds $75. the disclosure statement must be furnished, even though the deductible amount does not exceed of $75.

Separate payments of $75 or less made At different tin of the year for separate fund raising events will not be aggregated for purposes of the $75 threshold. However, the Service is authorized to develop anti-abuse rules to prevent avoidance of this disclosure requirement in situations such as the writing of multiple checks for the same transaction.

The required written disclosure statement must:

(1) inform the donor that the amount of die 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 charity must furnish the 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.

The disclosure must be in writing and must be made in a manner that is reasonably likely to come to the attention of the donor. For example, a disclosure in small print within a larger document might not meet this requirement.

In the following three circumstances, the disclosure statement is not required.

(1) Where the only goods or services given to a donor meet the standards for "insubstantial value" set out in section 3.01, paragraph 2 of Rev. Proc. 90-12, 1990-l C.B. 471, as amplified by section 2.01 of Rev. Proc. 92-49, 1992-l C.B. 987 (or any updates or revisions thereof);

(2) Where there is no donative element involved in a particular transaction with a charity, such as in a typical museum gift shop sale.

(3) Where 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. An example of an intangible religious benefit would be admission to a religious ceremony. The exception also generally applies to de minimis tangible benefits, such as wine, provided in connection with a religious ceremony. The intangible religious benefit exception, however, does not apply to such items as payments for tuition for education leading to a recognized degree, or for travel services, or consumer goods.

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

Please note that the prevailing basic rule d allowing donor only to the extent that the payment exceeds the fair market value of the goods or services received in return still applies generally to all quid pro quo contributions. The $75 threshold pertains only to the obligation to disclose and the imposition d the $l0 per contribution penalty, not the rule on deductibility of the payment.

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