The IRS has issued final regulations relating to the substantiation and reporting of charitable contribution deductions under Code Sec. 170 for income tax purposes. The final rules adopt proposed regulations issued in 2008, as well as other interim guidance, with only a few minor modifications. The regulations cover:
- the substantiation requirements for cash, check, or other monetary gifts;
- the substantiation requirements for contributions of $500 or more;
- the substantiation requirements for noncash contributions of clothing and household items; and
- the definition of qualified appraisal and qualified appraiser applicable to noncash contributions.
Cash, Check, or Other Monetary Gifts
The final regulations provide that a deduction is only allowed for any contributions of cash, check, or other monetary gifts where the donor maintains a record of the contribution. The record can be in the form of a bank record or written communication from the donee; the record must show the name of the donee and the date and amount of the contribution. A taxpayer may use a single written acknowledgment from a donee to satisfy the requirement, as well as the separate requirement under Code Sec. 170(f)(8) to substantiate contributions of $250 or more with a contemporaneous written acknowledgment.
A donor may make a contribution of cash, check, or other monetary gift to an organization that collects contributions and distributes them to ultimate recipient organizations. Under the final regulations, a blank pledge card provided by a done organization but filled out by the donor does not constitute adequate substantiation. A donee includes a Code Sec. 170(c) organization or a Principal Combined Fund Organization (PCFO) for purposes of the Combined Federal Campaign (CFC). The name of the local CFC may be used instead of the name of the PCFO.
The final regulations detail the different substantiation requirements under Code Sec. 170(f)(11) for noncash contributions of less than $250, $500, $5,000, and $500,000. For purposes of the $500, $5,000, and $500,000 thresholds, similar items contributed during the tax year are treated as one property. The substantiation requirements apply not only to the year of the contribution but any carryover year. Unlike the proposed regulations, the final rules do not contain a standard for any reasonable cause exception to not meeting the requirements. Any reasonable cause exception should be judged on the facts and circumstance of the taxpayer’s case.
If using Form 8323, Noncash Charitable Contributions, to substantiate a noncash contribution, an appraiser is required to use a taxpayer identification number on any appraisal. The appraiser may use an employer identification number (EIN) for this purpose, rather than his or her social security number. An appraisal must continue to be attached the taxpayer’s return for the contribution year under the final regulations, as well as the returns for the carryover years. A completed Form 8323 does not satisfy the separate requirement of Code Sec. 170(f)(8) that a contribution of $250 or more must be substantiated with a contemporaneous written acknowledgment.
Qualified Appraisal and Qualified Appraiser
The final regulations provide definitions for the terms “qualified appraisal” and “qualified appraiser.” A qualified appraisal is an appraisal that is conducted by a qualified appraiser in accordance with generally accepted appraisal standards. The appraisal does not need to be in strict compliance with the Uniform Standards of Professional Appraisal Practice (USPAP). This provides some flexibility by requiring conformity with appraisal standards that are consistent with the substance and principles of USPAP.
A qualified appraiser is an individual with verifiable education and experience in valuing the type of property for which the appraisal is performed. An appraiser can satisfy the requirement for verifiable education in valuing the type of property from a generally recognized professional trade organization. However, mere attendance at a training event is not sufficient, and evidence of successful completion of coursework is required. The education and experience requirements in the final regulations apply only to contributions made on or after January 1, 2019, to provide appraisers with a reasonable amount of time to meet them.