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.
CHARITABLE CONTRIBUTIONS-SUBSTANTIATION AND DISCLOSURE
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,
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.
DONOR'S SUBSTANTIATION REQUIREMENTS
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
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
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.
DISCLOSURE BY CHARITY OF RECEIPT OF QUID PRO QUO
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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