Gifting to charity is a fundamental part of the culture in America.  According to one study in Philanthropy Roundtable, Americans donate about 7 times more per capita than Europeans.  Even for those Americans of meager means, helping those who are in a worse position is not uncommon.  Our federal government encourages gifting to charity by allowing taxpayers to claim an itemized deduction for gifts to organized charities.  In the recently passed One Big Beautiful Bill Act, the federal government's support of individual giving was further enhanced by an above-the-line deduction for those taxpayers who may not be able to itemize their deductions. 

With charitable giving enshrined in our tax laws, it is important to understand the rules that are involved.  The IRS enforces the statutes that indicate very specific documentation requirements to enable contributions to be deductible for income tax purposes.  This post will deal with the requirements to substantiate donations of cash (cash, check, and credit card) to charities (documentation requirements will be different for donations of property).

To substantiate a charitable  contribution deduction, a donor must obtain one type of documentation for a donation of less than $250 and a different type (a written contemporaneous acknowledgment) for a donation of $250 or more. A blank pledge card provided by the donee organization but filled out by the donor is not adequate substantiation for a contribution because it does not include the information required under the statutes (IRC Sec. 170(f)(17)).   

Donations of Less than $250 - No deduction is allowed for any contributions of cash, checks, or other monetary gifts (in any amount), unless the taxpayer maintains a bank record (typically a cancelled check, wire transfer acknowledgment, or credit card record) or a written communication from the charity substantiating the date and amount of the transaction. Credit card statements should show the name of the charity, the date, and the transaction posting date.  A bank record includes a scanned image of both sides of a canceled check obtained from a bank. Written communication also includes electronic mail correspondence.

The $250 threshold is applied to each contribution separately. Therefore, if a donor makes multiple contributions to the same organization totaling $250 or more in a single year, but each gift is less than $250, written acknowledgment is not required unless the smaller gifts are parts of a series of related contributions made to avoid the substantiation requirements.  All contributions of money, regardless of amount, require either a cancelled check (or other bank record) or written communication from the charity showing the name of the charity organization, the date of the contribution, and the amount of the contribution.

Donations of $250 or More - No deduction is allowed for a contribution of $250 or more unless the taxpayer receives a written contemporaneous acknowledgment from the charity. The acknowledgment must indicate the following:

1. the name and address of the charity;
2. the date of the contribution;
3. the amount of cash contributed;
4. a reasonably detailed description (but not an estimate of value) of any property contributed;
5. whether the charity provided the donor any goods or services in exchange for the contribution; and, if so,
6. a description, and a good faith estimate of the value, of the goods or services provided or, if the only goods or services provided were intangible religious benefits, a statement to that effect. 

The IRS has successfully disallowed contributions over $250 when the taxpayer failed to timely obtain the required written acknowledgment from the charity or when the acknowledgment did not contain all the required information. The written acknowledgment must contain a statement as to whether the donor received any goods or services in exchange for the contribution, even if no goods or services were provided. A cancelled check, without a statement of whether the donor received goods or services, does not meet the contemporaneous written acknowledgment requirement. In addition, the receipt of a donor-advised fund packet which shows an intent to donate property is insufficient acknowledgement. Actual acknowledgement must be received once the transfer is actually made.

The written acknowledgment rule does not apply if the net value of the actual donation is less than $250. Therefore, a written contemporaneous acknowledgment is not required if, for example, a cash contribution of $300 is made and the donor receives a $60 gift in return (quid pro quo), but only if the taxpayer has a valid bank record such as a cancelled check for substantiation. For a sizeable donation to a foundation in which the taxpayer/donor is an officer (e.g., a family foundation), the planner may consider recommending that the officer issue a written acknowledgment to the donor, even though the officer and the donor are physically one and the same. IRS Publication 1771 explains that an organization can provide either a paper copy of the acknowledgment to the donor or it can provide the acknowledgment electronically, such as in an email addressed to the donor. Because there is no prescribed format for these acknowledgments, letters, postcards, and computer-generated forms are also acceptable.

The IRS's definition of contemporaneous is that the acknowledgment must be obtained by the taxpayer on or before the earlier of (a) the date the donor files the original return for the year the donation was made, or (b) the return's extended due date. The taxpayer must have acknowledgments for all contributions of $250 (or for less than $250 without a valid bank record) or more when the return is filed, even if this is before the extended due date. It is not possible to amend a return to include contributions for which an acknowledgment is obtained after the original return was filed.

The responsibility for obtaining this documentation lies with the donor, who must request it from the charity. The charity is not required to record or report this information to the IRS on behalf of the donor.  Failure to timely obtain a written acknowledgment from the charity will prevent the donor from deducting the charitable contribution. The IRS disallowed a charitable deduction for cash contributions to the taxpayers' church (even though the taxpayers retained copies of canceled checks) because the written acknowledgment was not obtained by the taxpayers prior to filing their return. 

Quid Pro Quo Contributions - A quid pro quo contribution is a payment made partly as a contribution and partly for goods or services provided to the donor by the charity. Charitable organizations must provide a written disclosure statement to donors who make a quid pro quo contribution in excess of $75. The written disclosure should inform the donor that the charitable deduction is limited to the excess of the contribution over the value of the goods or services provided by the charity (with a good faith estimate of the value of the goods or services provided). Assigning a value to intangible religious benefits is not necessary. Penalties apply to the donee organization for failure to provide the necessary written disclosure. This requirement is separate from the contemporaneous written substantiation required for deductibility purposes.  An example of substantiation requirements for quid pro quo contributions follow:

Connie paid $100 to St. George's School (a qualified charity) in exchange for a concert ticket valued at $40. Because the payment was partly a contribution and partly for goods or services, it is a quid pro quo contribution. Connie can deduct $60 ($100 payment − $40 value received) on her income tax return, provided that she meets the AGI limitations. Because Connie's quid pro quo payment exceeds $75, St. George's School must furnish her with a disclosure statement, even though the deductible amount is less than $75.

Separate payments of $75 or less made at different times of the year for separate fund-raising events will not be combined for determining the $75 threshold.

Payroll Deduction - To satisfy the recordkeeping requirements for donations made via payroll, donors should keep documents from employers (paystub, W-2 wage statement, or other employer furnished document) showing the amount donated in addition to an official pledge card from the charity. These records will satisfy the requirement that the taxpayer receive a written communication from the donee organization. No deduction for a contribution of $250 or more made by payroll deduction is allowed unless the taxpayer meets substantiation rules. To substantiate a contribution of $250 or more made by payroll deduction, the pledge card (or other receipt prepared by the charity) must state that the exempt group does not provide goods and services in whole or partial consideration for any contributions made by payroll deduction. The $250 threshold is applied by treating each payroll deduction as a separate contribution. Therefore, written acknowledgment must be obtained only if $250 or more is withheld from each paycheck. Employers often sponsor a matching program for charitable contributions made by their employees to certain charities. If an employee's contribution to a charity is matched (in whole or in part), and the employee receives goods or services in return for the donation, they are treated as provided solely in consideration for the employee's portion of the total contribution.

Out-of-pocket Expenses - Volunteers who incur out-of-pocket expenses must keep detailed records of those expenditures. If a donor makes a single contribution of $250 or more in the form of unreimbursed expenses (out-of-pocket transportation expenses incurred to perform donated services), the volunteer must have a written acknowledgment from the charity describing the volunteer services provided and whether they received any goods or services (including value) from the charity in consideration. The amount of out-of-pocket expenses does not need to be shown on the acknowledgment.

Travel expenses incurred while away from home, such as meals and lodging, are deductible only if (a) there is no significant personal pleasure, recreation, or vacation in the travel, and (b) the performance of services is substantial. Deductions were denied for travel expenses incurred as a volunteer to a symphony orchestra on an overseas tour. The court held that the expenditures were primarily personal (e.g., sightseeing).  The following is an example of the substantiation requirements for out-of-pocket expenses:

Jeff is the chosen representative to an annual convention of his church. He buys an airline ticket to travel to the convention. The church does not reimburse him for the $500 ticket. Assume his expenditure otherwise qualifies as a charitable deduction (e.g., the church is a qualifying organization and there was no significant element of personal pleasure involved in the travel). To substantiate his charitable deduction for out-of-pocket costs, Jeff should keep a record of the expenditure, such as a copy of the ticket. He should also obtain from the church a description of the services that he provided and a statement that he received no goods or services from the organization.