In December 1996, the Internal Revenue Service released regulations that provide guidance for allowing various charitable contribution deductions, substantiation requirements for charitable contributions of $250 or more, and the disclosure requirements for quid pro quo contributions in excess of $75. These final regulations clarify various questions raised by provisions of the Omnibus Budget Reconciliation Act of 1993 and subsequent temporary regulations.
Charitable intent to make a contribution
The new gift regulations incorporate a two-part test that state a charitable deduction is disallowed for transfers to charity in consideration for goods or services except to the extent the payment exceeds the fair market value of the goods or services. Additionally, no deduction is allowed unless the taxpayer intends to make a payment in excess of the fair market value of those goods or services. Under certain circumstances donors can effectively reject the benefits offered and receive a deduction for the full amount of their contribution.
For example, a donor who checks off a form to reject benefits associated with a particular gift would be entitled to claim a contribution for the full amount. One who does not make known his or her refusal of the goods or services would find his or her deduction reduced by the value of the goods or services provided.
Items of insubstantial value
If a donor receives benefits with a fair market value of less than 2% of the amount of the “gift” (up to a maximum of $67 for 1996), those benefits are considered to have an insubstantial value and the contribution will not be reduced. In addition, donors making “gifts” of $33.50 or more who receive only a token item may deduct the full amount of their gift.
Usually the items are considered to have an insubstantial value if they bear the charity’s name or logo and have an aggregate cost to the charity $6.70 or less. Newsletters of less than commercial quality as well as low-cost items provided for free without an advance order are considered to have an insubstantial value. Guidance is also provided for membership benefits, payments for the right to receive tickets to college events, goods or services provided to a donor’s employees, and certain corporate gifts.
Nuts and bolts issues
A written acknowledgment is considered to be contemporaneous if it is obtained on or before the earlier of the date the taxpayer files his or her return for the year of the gift or the due date including extensions. An acknowledgment obtained after filing a donor’s return is not considered contemporaneous within the meaning of the law. Multiple contributions totaling $250 or more, where no single gift is at least $250, do not require substantiation, however, in a case where multiple contributions are made and, at least one or more gifts amount to $250, a single acknowledgment reflecting the total amount of contributions for the year is sufficient.
Planned gifts and substantiation
The regulations also explain coverage of various planned gifts. The final regulations stipulate that the substantiation requirements do not apply to transfers from charitable remainder unitrusts or annuity trusts. In the case of the transfer of cash or other property to a pooled income fund, written acknowledgment from the charitable organization maintaining the fund must include a statement that there was a transfer to the pooled income fund and describe any goods or services added to the income interests that may have been provided. The contemporaneous written acknowledgment need not include the value of the income interest in the pooled income fund.
These regulations also offer guidance for substantiation of a deduction for payments in exchange for a charitable gift annuity similar to that for pooled income funds