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Posted September 8th, 2015

Gift Substantiation: The Tail That Wags the Dog

Gift box with money

The year 1984 is significant for several reasons. There’s George Orwell’s 1949 novel, 1984. The same year also saw the unveiling of the Apple Macintosh computer. And to the point of this blog, the “Qualified Appraisal” (Q.A.) rules were introduced in the 1984 Tax Act.

The Q.A. rules represent the opening salvo in modern tax legislation aimed at gift substantiation for charitable deductions. Absent required gift substantiation, an individual can lose his or her entire federal income tax charitable deduction for a perfectly good, perfectly valid gift.  Unfortunately:

  • Donors are often clueless about this.
  • So are their advisers often enough.
  • So are many charitable organizations.

The elements of gift substantiation are (a) good record keeping on the donor’s part; (b) good gift receipt practice on the part of the donee organization; and (c) when required of the donor, substantial compliance with the Q.A. rules.

Some examples:

[1] Donor obtains an appraisal, but the appraisal fails to state the date of gift. Held, donor’s appraisal fails to meet the definition of a Q.A. Charitable deduction denied.

[2] Donor obtains a gift receipt for a gift of more than $249. The receipt fails to state whether the donee organization provided any goods or services to donor in consideration of the gift. Held, charitable deduction denied, even though donor, in fact, received no goods or services.

Ouch!

There’s a lot more, a lot more that’s important. Check back soon for more details on gift substantiation.

An article in the October 2015 Give & Take has some more information on claiming token donor gifts. Read it here.

Click here to download our free white paper “Gift Substantiation in a Nutshell” for more information about gift substantiation.

by Jon Tidd

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