Contemporaneous Charitable Contribution Documentation

It’s tax time again and as you are gathering your receipts and documentation I feel compelled to mention Contemporaneous Charitable Contribution Documentation.  That is quite a mouthful, but if you want to survive your Internal Revenue Service audit, you should keep reading.  The IRS requires you to keep documentation of the things you claim on your tax return – the income and the expenses. That part generally makes sense, but the rules can get very specific for charitable contributions.

For cash contributions of more than $250 you need to follow the rules exactly and they are different than the rules for contributions of less than $250. For that $50 donation to United Way, a copy of the check will be just fine. But if you give a $500 check to the United Way, a copy of the check is not going to cut it. That’s where the contemporaneous charitable contribution documentation comes in.

If you give more than $250, you need a receipt from the charity that says how much you gave, what year it’s for, that it’s a charitable organization and it needs to contain the words “no goods or services were provided” or a very similar phrase. Obviously if it’s a silent auction that you spent $1,000 and got $400 worth of items, it will say $400 was provided so you can deduct the other $600. The key phrase is “no goods or services were provided” when you hand over a check and get nothing in return.

My favorite example is if you give money to the Carlson School of Management at the U of M. You will probably get a thank-you letter of some kind from the University, from the Carlson School, maybe from the accounting department, and maybe one from the charitable receipt department. The one from the charitable receipt department (or whatever they call themselves) is the one that will say “no goods or services were received”. The other ones are just letters from the various deans or presidents and those do not count even though they mention your gift.

Contemporaneous means you must have the documentation in your hands before you file your tax return, which is why I bring it up now before you have filed. If you are audited two years from now, you cannot go back to the organization and ask for a new letter; the IRS won’t accept it. I realize it’s a bit crazy to think that a copy of the check and 3 letters from the University about your $10M gift isn’t sufficient for the IRS unless one of them says “no goods or services”, but the IRS has gone to court and won every time. You need to go by the absolute letter of the law on this one or the IRS will deny those charitable contributions. Don’t say I didn’t warn you on this one.

In accordance with Circular 230 Disclosure

Subscribe to TaxConnections Blog

Enter your email address to subscribe to this blog and receive notifications of new posts by email.