Cash Gifts – Disclosure and Substantiation Requirements

When should an organization provide an acknowledgement to a donation?

Donors cannot claim a deduction on their tax return for charitable donations of $250 or more unless the organization sends a contemporaneous acknowledgement of the gift.  There is no penalty for failing to acknowledge cash donations when no goods or services were received by the donor in exchange. However, it is a best practice and generates good-will from your donors if you anticipate their need for an acknowledgement.

The acknowledgement should contain the following information: name of organization; amount of cash contribution; description (but not the value) of a non-cash contribution; statement that no goods or services were provided by the organization in return for the contribution (if that was the case); description and good faith estimate of the value of goods or services provided in exchange for the contribution (if any); statement that goods or services provided were entirely intangible religious benefits (if this applies).  Each single contribution of $250 should be acknowledged in the above manner.  The organization may also provide an annual summary of all such contributions if they wish to acknowledge in one single statement.

In order for the acknowledgement to be considered contemporaneous, it should be received by the donor before the due date for individual tax filers for the year of the contribution.  However, in the interest of best practices and generating good will – the acknowledgement should be sent out in a timely manner.

What are goods and services?

Goods or services provided in exchange for a contribution include cash, property, services, benefits, or privileges.   However, there are exceptions: token/insubstantial goods or services (there are specific rules for determining whether a good or service is insubstantial); certain membership benefits (again, specific rules apply); and intangible religious benefits.

What is a quid pro quo contribution and how should you acknowledge it?

A quid pro quo contribution is one in which the donor receives more than a token benefit in return for their contribution.  Donors may only take a charitable contribution deduction to the extent that their donation exceeds the fair market value of the goods or services received.  An organization MUST provide a written disclosure to all donors who make a payment of more than $75 and receive goods and services in return for part of their donation.  This disclosure must inform a donor that their deduction is limited to the excess they contributed over the fair market value of the property received in return,  as well as give a good-faith estimate of the value of that property.  The disclosure can be made at either the time of solicitation or after the contribution – but must be made in a manner that the donor is likely to see (i.e., don’t put it in tiny print in the context of a much larger document).  The disclosure statement does not have to be provided if the exceptions mentioned in the prior paragraph apply, or if there is no donative element (for example, the purpose of the transaction was to buy an item from the organization).

There is a penalty for failing to meet the disclosure requirement – that penalty is $10 per transaction, not to exceed $5,000 per fundraising event.

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