Navigating Uncharitable IRS Rules on Deducting Gifts

Get the Proper Records for Your Contributions

By Dan Pilla

For years, people have been getting blindsided by a little-known recordkeeping requirement for charitable contributions. This hitch could cost you thousands of dollars in lost deductions if you don’t have the proper paperwork. What you need is simple but often overlooked.

The law requires that you have a “contemporaneous acknowledgment” of your contributions in hand before the due date of the return claiming the contributions. The acknowledgment must be in writing and must come from the charitable organization to which you gave money.

The acknowledgement must state:

  • The amount of your gift.
  • The date of the gift.
  • And most importantly, whether you received anything of value in return for your gift. If so, the value of the item received must be declared.

If nothing was received in exchange for the gift, the statement must show that you received only an “intangible religious benefit,” for example.

This rule applies to one-time contributions in excess of $250 to any one organization. It DOES NOT apply to the total of contributions made over the year. The idea behind the law is that you cannot claim a deduction for the value of any tangible benefit you receive in exchange for a gift.

For example, suppose you contribute $250 to your church and in exchange, you get four $25 tickets to the annual benefit dinner. You gave $250 but got back tangible benefits worth $100. In that case, you can only deduct $150 (250 – 100 = 150), not the entire $250 gift.

The real key to this rule – and where many people get tripped up – is that the acknowledgment must be in hand before the due date of your tax return. It is NOT good enough to obtain an acknowledgement later. Even if you show canceled checks to prove every nickel of your deduction and even if you manage to come up with an after-the-fact acknowledgment, your deduction will be disallowed if the acknowledgement does not predate the return’s due date.

Non-Cash Charitable Contributions

For all non-cash charitable contributions, you must prove the fair market value of the item contributed. Your deduction is based on the item’s fair market value at the time of the gift. Many people give children’s clothing, toys, used furniture, etc. Because it is virtually impossible to obtain a reliable appraisal of such items, the only way to prove fair market value is through an affidavit. Your affidavit must show a description of the item, its original price, its current condition, replacement cost, etc., and your reasonable estimate of fair market value.

By having your affidavits notarized before filing your return, you fix in time the fact that these contributions occurred during the year you claimed them. This gives you an airtight document package to prove your deductions if challenged later.