The IRS issued proposed regulations in August designed to implement Congress’ 2004 legislation calling for increased substantiation and reporting requirements for charitable contributions. The proposed regulations apply across the board and do not contain exceptions for even small cash contributions. For example, donations at informal fundraisers or to Salvation Army kettles are required to be substantiated by receipts or cancelled checks. Substantiation of cash donations must be in the form of a written receipt from the charity showing the date and amount of the contribution and the name of the charity.
The proposed regulations also spell out strict rules for the valuation of noncash donations to charity, as follows:
- Deductions claimed for noncash contributions of less than $250 must be supported by a receipt from the charity or reliable records.
- Deductions claimed for noncash contributions of more than $250 but less than $500 must be supported by a contemporaneous written acknowledgment from the charity.
- Deductions claimed for noncash contributions of more than $500 but not more than $5,000 must be supported by a contemporaneous written acknowledgment from the charity and the taxpayer must file Form 8283.
- Finally, deductions for contributions in excess of $5,000 must be supported by a contemporaneous written acknowledgment, Form 8283 and a qualified appraisal (which must be attached to the tax return if the gift exceeds $500,000).
The proposed regulations also specify the requirements for achieving deductions for used clothing and household items (imposing a “good used condition or better” standard) and the limitations on deductibility of vehicle donations. The proposed regulations will be effective only when finalized, but reflect the view of the IRS.