Financial Information

Charitable Contributions

There are two general rules to be aware of to meet substantiation and disclosure requirements for federal income tax return reporting purposes:

• Prior to August 17, 2006, a donor was responsible for obtaining a written acknowledgement from a charity for any single contribution of $250 or more before the donor could claim a charitable contribution on her federal income tax return.  Effective with the passage of the Pension Protection Act of 2006 on August 17, 2006, monetary contributions of any amount need to be supported with a bank record or receipt from the charitable organization in order for the donor to claim the contribution on her tax return;
• A charitable organization is required to provide a written disclosure to a donor who receives goods or services in exchange for a single payment in excess of $75.

Written acknowledgement

Although it is a donor’s responsibility to obtain a written acknowledgement, we can assist our donors by providing a timely, written statement containing the following information:

• the name of your organization;
• the date of the contribution;
• the amount of the cash contribution;
• description of the non-cash contribution (but not the value – it is up to the donor to determine the value of goods donated to your group);
• statement to the effect that no goods or services were provided by the organization in return for the contribution, assuming this was the case;
• description and good faith estimate of the value of goods or services, if any, which an organization provided in return for the contribution.

A separate acknowledgement may be provided for each contribution, or one acknowledgement, such as an annual summary, may be used. The acknowledgement may be provided electronically (e-mail) or by paper.  To be considered timely, a written acknowledgment must be received by the earliest of the following two dates: a) the date the individual files his/her federal income tax return; or b) the due date of the return. Most organizations will send written acknowledgements no later than January 31 of the year following the donation. Click here for a sample letter.

Goods and Services

The acknowledgement must describe goods or services an organization provides in exchange for a contribution of $75 or more, and must provide a good faith estimate of the value of such goods or services (because the donor must generally reduce the amount of the contribution deduction by the fair market value of the goods and services provided by the organization). Goods or services include cash, property, services, benefits or privileges.

Unreimbursed Expenses

If a donor makes a contribution in the form of unreimbursed expenses, e.g. out-of-pocket travel expenses incurred on your group’s behalf, then the donor must obtain a written acknowledgement from your group containing:

• a description of the services provided by the donor;
• a statement of whether or not the organization provided goods or services in return for the contribution;
• a description and good faith estimate of the value of goods and services, if any, provided in return.

Examples of Written Acknowledgements

• “Thank you for your cash contribution of $300 that the MHC Club of Cape Cod received on September 20, 2004. No goods or services were provided in exchange for your contribution.”
• “Thank you for your cash contribution of $350 that the MHC Club of Cape Cod received on September 20, 2004. In exchange for your contribution, we gave you a cookbook with an estimated fair market value of $30.”
• “Thank you for your contribution of a picture of Mary E. Woolley that the MHC Club of Cape Cod received on September 20, 2004. No goods or services were provided in exchange for your contribution.”

Written Disclosure

A donor may take a contribution deduction only to the extent that his/her contribution exceeds the fair market value of the goods or services received in return for the contribution*.  Therefore, donors need to know the value of the goods/services. An organization must provide a written disclosure to a donor who makes a payment exceeding $75 partly as a contribution and partly for goods/services provided by the organization.

*An exception is made for token goods, such as free, unordered low-cost articles (valued at less than $8.30 in 2006).  For more information on token exceptions see IRS publication 1771.

For example, a donor gives your group $100 in exchange for a concert ticket with a fair market value of $40. In this example, the donor’s tax deduction may not exceed $60. Because the donor’s payment exceeds $75, you must furnish a disclosure statement.

The written disclosure statement must:

• inform the donor that the amount of the contribution that is deductible for federal income tax purposes is limited to the excess of money (and the fair market value of property other than money) contributed by the donor over the value of the goods or services provided by the organization;
• provide the donor with a good-faith estimate of the fair market value of the good/services.

For more information on charitable contributions, refer to IRS Publication 1771, Charitable Contributions – Substantiation and Disclosure Requirements. For assistance about valuing donated property, see IRS Publication 561, Determining the Value of Donated Property. (Valuing donated property is the donor’s responsibility, but you can help by directing donors to this publication.)

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