How to Acknowledge Charitable Donations

One of the many benefits of donating to charity is that both the donor and the charity can benefit: the donor may receive a tax deduction while helping the organization fulfill its mission. However, donors can claim a tax deduction for contributions of $250 or more only if they obtain a contemporaneous, written acknowledgment from the charitable or religious organization.

Although a nonprofit organization is not legally obligated to supply this acknowledgment, providing the documentation gives the donor a tangible benefit and builds goodwill. Here’s what nonprofit organizations should know about acknowledging charitable donations.

What to Include in Charitable Donation Acknowledgments

For the donor to be able to claim a charitable deduction, the statement acknowledging the donation must include the following information:

• The name of the charitable organization that received the gift.
• The date of the gift.
• For cash contributions, the amount of the donation.
• For noncash contributions, a description of the donated goods or services with enough detail to identify the donated item(s) with specificity.
• A statement that no goods or services were provided by the nonprofit organization (if that is the case). Note: For churches and other religious organizations, this statement should read “No goods or services were provided in exchange for this gift other than intangible religious benefits.”

This statement can take various forms, such as a letter, email, or postcard. Because a donor should have the charitable donation acknowledgment in hand before they file the income tax return on which they claim the deduction for the gift, it is a best practice to send the donation acknowledgment no later than January 31 of the year following receipt of the donation.

If the charitable organization provides goods or services in exchange for a contribution of $250 or more, the acknowledgment must also include a good-faith estimate of the value of those goods or services, since the donor is not allowed to deduct that portion of the contribution. Of course, like most rules, this one has exceptions.

Spotlight on Quid Pro Quo Contributions

Have you ever made a charitable donation and received an item in return, such as a ticket to an athletic event or a five-course dinner? Donating money in exchange for goods or services is considered a “quid pro quo contribution.”

A nonprofit organization that receives a quid pro quo contribution is required to furnish a written disclosure to donors informing them that the deductibility of the donation is limited to the excess of the donated amount over the value of the goods or services received by the donor. The organization must also disclose a good-faith estimate of the fair market value of the goods or services provided to the donor. Since organizations often receive discounts on these goods (or even receive them for free), nonprofits should understand that the value of goods stated on the disclosure statement is the fair market value — not the actual cost of the goods or services.

For example, suppose a nonprofit organization is given 50 tickets to a professional basketball game that would normally cost the public $60 each. Donors who give $100 to the organization receive a ticket in recognition of their donation. The deductible amount of the donation is limited to $40 (the $100 donation minus the $60 fair value of the ticket received). Again, as with most rules, there are exceptions, and there are certain times when a written disclosure statement is not required.

There are penalties for noncompliance, so nonprofit organizations need to fully understand these requirements and the related exceptions. For quid pro quo contributions of more than $75, the penalty is $10 per contribution, not to exceed $5,000 per fundraising event.

Noncash Contributions Have Expanded Requirements

Noncash contributions that are valued at more than $500 and do not exceed $5,000 in value must be reported by the donor on IRS Form 8283. Noncash contributions that exceed $5,000 in value must be substantiated by a qualified appraisal, and the nonprofit organization is required to sign the Donee Acknowledgment section of IRS Form 8283. Note that by signing the donee acknowledgment section, the nonprofit organization is only acknowledging receipt of the gift described on the IRS Form 8283. The nonprofit organization is making no statement regarding the value of the gift.

Helpful IRS Publication

IRS Publication 1771 provides helpful information regarding the required content of a contemporaneous written acknowledgment and the quid pro quo gift rules.

Ensure Your Donation Acknowledgments Meet the Requirements

If your organization follows the best practice of having a gift acceptance policy, make sure it includes details on how to substantiate and acknowledge contributions.

Our nonprofit professionals can help you navigate the complexities of required donation disclosures. Contact us today to get started!