It’s that time of year again! As the holidays approach, most companies are making their last round of charitable contributions before year-end, and it’s vital to understand how to properly report these donations according to the IRS.
An organization should provide a donor with a written acknowledgement for each charitable donation they receive. Per the IRS, a written acknowledgement is required to substantiate a charitable contribution of $250 or more.
Whether a contribution is received, cash or non-cash, the written statement should be provided containing the following information:
- Name of the receiving organization
- Amount of cash contribution
- Description (but not value) of non-cash contribution
- Statement that no goods or services were provided by the receiving organization in return for the contribution, if that’s the case
- Description and good faith estimate of the value of goods or services, if any, that the receiving organization provided in return for the contribution
- Statement that goods or services, if any, that the receiving organization provided in return for the contribution consisted entirely of intangible religious benefits, if that’s the case
Quid Pro Quo Contribution
Contributions in which goods and services are received in return are called Quid Pro Quo Contributions. This is a payment that a donor makes to a charity partly as a contribution and partly for goods or services.
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 part of the payment is $60. Even though the deductible part of the payment is not more than $75, a disclosure statement must be provided by the receiving organization to the donor because the donor’s total payment (a quid pro quo contribution) is more than $75. Failure to make the required disclosure may result in a penalty to the receiving organization.
When considering the amount of goods and services received, this amount should be based on fair market value and not the cost to the organization. Organizations can have items or services donated or discounted to them, which is why the amount received should be fair market value and not the cost.
For non-cash contributions, it’s very important for an organization to not assess a value on the non-cash item(s) contributed on the written acknowledgement letter. Instead, it’s the donor’s responsibility to assess a value.
Stock donations are a great example of non-cash contributions since they’re a way for donors to avoid capital gains taxes and receive a charitable contribution deduction for the stock.
There are IRS reporting and filing requirements for organizations that dispose of donated property within three years.
Whether you’re making a donation or receiving one, always check the Gift Acceptance Policy for the organization beforehand, especially if it’s a non-cash donation. For additional assistance regarding charitable donations and reporting best practices, contact us today.
Special thanks to SST Senior Audit Manager Bridget Losa and Tax Supervisor Christina Nichols Morris for providing the content for this post. For additional support, contact Bridget or Christina today.