Substantiating Non-Cash Gifts

After it’s too late to correct, many donors have discovered that they failed to properly substantiate a non-cash gift, resulting in the loss of a valuable income tax charitable deduction. Even gifts of cash by check or credit card require, at a minimum, a bank record or receipt from the charity showing the organization’s name, amount and date of the gift [Code §170(f)(17)]. If the cash gift is $250 or more, the donor must obtain written substantiation from the charity describing the gift and making a good faith estimate of the value of any goods or services provided to the donor in return or indicating that no goods or services were provided [Code §170(f)(8)]. The donor must obtain the substantiation on or before the earlier of (1) the date the taxpayer files the return for the year in which the contribution is made or (2) the due date, with extensions, for filing the return [Code §170(f)(8)(C)]. An acknowledgment obtained later than either of these dates is not considered contemporaneous.

As demanding as the rules are for substantiating cash gifts, they can be even more exacting for non-cash gifts. Donors must have written records including (1) the name and address of the charity, (2) the date of the gift, (3) a description of the property in enough detail to identify it, including its value; in the case of securities, the name of the issuer, type of security and whether the security is regularly traded on a stock exchange or over the counter, (4) the fair market value of the property on the date of the gift and the method of valuation, (5) if less than the entire interest in the property is contributed, the amount claimed as a deduction for the current tax year, together with amounts deducted in earlier years for contributions of other interests in the same property and (6) the terms of any agreement or understanding between the donor and the charity as to the use, sale or other disposition of the gift property, including such things as restricting temporarily or permanently the charity’s right to use or dispose of the property, reservation of an income interest or other interest—such as the right to vote securities or reacquire the gift property—and the earmarking of the property for any particular use [Reg. §1.170A-13].

If the value of the property is more than $500, donors must obtain the same information as for cash gifts but must also detail the manner of acquiring the gift (e.g., by purchase, gift, bequest), the date of acquisition and the donor’s cost basis or adjusted basis [Reg. §1.170A-13(b)(3)].

Gifts exceeding $5,000 require an appraisal by a qualified appraiser [Code§170(f)(11)(E)]. An exception exists for gifts of publicly traded stock for which the market value is readily ascertainable. Gifts of closely held stock require an appraisal if the deduction exceeds $10,000.

Because of the strict rules that apply to deductions for non-cash gifts and the potentially costly result for failing to follow the rules, clients planning significant non-cash gifts this year (e.g., real estate, collectibles, life insurance) should take care to obtain the needed documentation from the charity as well as a qualified appraisal where required.

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