Acknowledging Charitable Contributions

When someone gives you a gift, social protocol states that you should acknowledge the gift, expressing thanks to the donor for his or her thoughtfulness and generosity. It’s the right thing to do. That same protocol holds when the recipient is a charitable organization. However, in this case, legal requirements are added to social expectations. An IRS tax-exempt organization must fulfill certain legal obligations in acknowledging contributions from donors. So, in this case it’s not just the right thing to do, it’s the legal thing to do.

Let’s start simple with the most common type of contribution, one of cash. Cash contributions include payment in cash, by check, or through use of a credit card. Regardless of the form of the contribution, the organization is in essence receiving cash. Cash contributions of $250 or more must be acknowledged by the donor organization. This may be done on an annual basis, as is common with annual giving statements provided by churches to donors. The statement must be provided contemporaneously which means before the due date of the donor’s tax return.

The giving statement should state the value of any goods or services received for the contribution. The deductible contribution is reduced by this amount. So, if I give an organization $50 and receive book in return, the statement should state the value of that book and reducing the deduction allowed the donor by that amount. General benefits, such as spiritual benefits or education received at a worship service or Sunday school class, for example, would not reduce the amount of the deductible contribution. Likewise, receipt of a gift of a token amount does not reduce the deductible contribution. A token amount is currently $9.10 for donors contributing $45.50 or more in a given year.

Oftentimes, a volunteer may incur out-of-pocket expenses in performing duties on behalf of a charitable organization. In these cases, the organization should acknowledge the expenditure with a letter to the effect that the volunteer incurred expenses on behalf of the organization and was not reimbursed for them. An example would be when a volunteer went on a mission trip representing the organization. The letter should merely acknowledge the volunteer’s participation, but not assign a dollar value. The volunteer would deduct his or her expenses on the1040 and does not have to report the expenditures to the organization. In related vein, a volunteer cannot deduct the value of their time or services rendered on the organization’s behalf. The organization would do well to acknowledge the contribution by thanking the volunteer. The organization, however, should not assign a dollar value to the services. They may make an estimate of the value of the services and reflect those as gifts in kind in its financial statements.

When someone makes a non-cash gift to a charitable organization, the organization should acknowledge the gift, stating what was donated, but is not to assign a value to the contribution. This is the responsibility of the donor. If securities are donated, the donor’s deduction is the average of the high and low price that security traded for on the date of donation. If the security did not trade on that day, the average of the high and low prices on the last day traded before the donation and the first day after the traded after the donation are utilized.

If the non-cash gift is a vehicle, boat, or airplane different rules apply. The organization should give the donor a 1098-C, stating the sale price of the item, or its fair market value if the organization kept the property for use in its exempt purpose. The amount reflected on the 1098-C would be the donor’s deductible amount. This is covered in more detail in a prior blog. It should be noted that the 1098-C should be given the donor within 30 days of selling the item.

If an individual makes a gift to someone in the organization, the individual does not get a charitable contribution deduction, and the individual receiving the gift does not report it as income. Since the contribution did not occur through the organization, there no reporting responsibility for the organization. For example, a church member gives the pastor a restaurant gift card in appreciation of his work on behalf of the church. This is a gift between two individuals, and is not a tax matter. The key here is that the gift did not go through the church. It should be noted that this cannot be taken to an extreme, with the pastor receiving no salary, but relies on gifts from the congregation. In this case, the IRS would rule that the gifts were disguised compensation, and would be taxable income to the pastor. Also, this situation applies only in cases where the pastor had rendered no special services for the member. If, for example, the pastor were compensated by a member for performing a wedding, that would be taxable income to the pastor, reported on Schedule C.

Contributions are the lifeblood of most charitable organizations. They should properly acknowledge these to the donors, in addition to fulfilling any legal obligations in reporting.

Dr. John Stancil (My Bald CPA) is Professor Emeritus of Accounting and Tax at Florida Southern College in Lakeland, FL. He is a CPA, CMA, and CFM and passed all exams on the first attempt. He holds a DBA from the University of Memphis and the MBA from the University of Georgia. He has maintained a CPA practice since 1979 with an emphasis in taxation. His areas of expertise include church and clergy tax issues and the foreign earned income credit. He prepares all types of returns, individual and business.

Dr. Stancil has written for the Polk County Business Journal and has presented a number of papers at academic conferences. He wrote the Instructor’s Manual for the 13th edition of Horngren’s Cost Accounting. He is published in the Global Sustainability as a Business Imperative, Green Issues and Debates, The Encyclopedia of Business in Today’s World, The Palmetto Business Review, The CPA Journal, and in the NATP TaxPro Journal. His paper, “Building Sustainability into the Tax Code” was recognized as the outstanding accounting paper at the annual meeting of the South East InfORMS. He wrote a book entitled “Tax Issues Faced by U. S. Missionary Personnel Abroad ” that will soon be published.

He has recently launched a new endeavor, Church Tax Solutions, which presents online, on demand seminars on various church and clergy tax issues.

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