Written Acknowledgement

It is the donor’s responsibility to obtain written acknowledgement of a contribution of $250 or more; however, the charitable organization can assist by providing a timely, written statement. The donor must have the acknowledgement by the earlier of the date on which the donor files his individual return or the due date of the return. The statement must contain the following:

1. Name of Charitable Organization
2. Amount of a cash contribution
3. Description (but NOT the value) of any non-cash contribution
4. Statement that no goods or services were provided by the organization in return for the contribution; or
5. Description and good faith estimate of the value of goods or services, if any, that an organization provided in return for the contribution; or
6. Statement that goods or services, if any, that an organization provided in return for the contribution consisted entirely of intangible religious benefits.

If an organization provided goods or services to the donor, they must describe and provide a good faith estimate of the value of the goods and services. The donor must reduce the amount of the contribution by the fair value of any goods and services received from the organization. Goods or services include cash, property, services, benefits, or privileges, and are usually associated with special fundraising events such as golf tournaments, silent auctions, gala balls, etc.

A donor will not have to reduce the amount of the contribution if the only items received were insubstantial (token) items, membership benefits, or intangible religious benefits. An item is considered insubstantial if it is given in association with a fundraising campaign and the fair market value of benefits received does not exceed 2% of the payment or $82 or the payment is $41 or more and the only items received bear the organization’s logo or are “low cost articles” worth $8.20 or less.

Membership benefits include payments of $75 or less where the donor is just receiving annual recurring rights or privileges, primarily associated with museums, art societies, and symphonies. Rights or privileges that can be excluded are (1) Free or discounted admissions, (2) Discounts on gift shop, (3) Free or discounted parking, and (4) Free or discounted admission to member-only events where per-person cost is within “low-cost” article.

While there is generally no penalty on the organization for failure to provide such written acknowledgement (however, see “Bush signs American Jobs Creation Act of 2004”), the donor will not be allowed to take a deduction unless the written acknowledgement is obtained.

Written Disclosure

As mentioned above, a donor may only take a contribution deduction to the extent the contribution exceeds the Fair Market Value (FMV) of goods and services received. Such contributions are called Quid Pro Quo contributions. An organization must provide a written disclosure statement to a donor who makes a quid pro quo contribution where the amount received by the organization exceeds $75.

The required statement must inform the donor that the amount of deductible contribution is limited to the excess of money contributed over the FMV of goods and services provided and also provide the donor with a good-faith estimate of the FMV of such goods or services. The statement must be provided either in connection with the solicitation for the contribution or the receipt of the contribution and must be in writing. Two exceptions to the written disclosure rules are:

1. Where goods and services received meet the token, membership benefit, or intangible religious benefits exceptions; or
2. Where there is no donative intent – such as museum gift shop sale

A penalty is imposed on charities that do not meet the written disclosure requirements. The penalty is $10 per contribution, not to exceed $5,000 per event or mailing.

Charitable organizations usually have a difficult time estimating of fair market value. Fair market value is defined as price that would be agreed on between a willing buyer and a willing seller, neither being required to act, and both having reasonable knowledge of relevant facts. In determining a good faith estimate, you would look at relevant factors including:

1. Cost or selling price of item
2. Sales of comparable properties
3. Replacement cost
4. Opinions of experts
5. Established admission price to similar events

The IRS has stated that the cost to the charity is not necessarily a relevant factor as the charity may have received donated items. The IRS does allow use of any reasonable methodology as long as applied in good faith.

Reporting and Other IRS Guidance

A donor is required to complete Form 8283 if the amount of the non-cash donation is greater than $500. Additionally, if the non-cash donation is greater than $5,000, the donor is generally required to obtain a qualified appraisal and have the organization sign the Form 8283 before a deduction can be taken. If the organization sells the property within 2 years of the date when the donation was made, then the organization must also complete Form 8282 and file it with the IRS and send a copy to the donor.

The IRS recently issued two new publications – a Charity’s Guide to Car Donations and a Donor’s Guide to Car Donations. Both publications describe types of car donation programs, their impact on the Tax Exempt status of the organization and when such contributions are deductible. Organizations that desire to operate a car donation program, either by themselves or through a broker, should review these publications as well as recent changes in the law regarding documentation required for vehicle donations (see “Bush signs American Jobs Creation Act of 2004”).