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Acknowledgement letters for contributions, what are the rules?

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Acknowledgement letters for contributions, what are the rules?

I am an Assistant Treasurer of a charity and write the acknowledgement letters for contributions. I was under the impression we were required by law to give an acknowledgement. Is this a fact? I thought if the contribution were under $75, no acknowledgement was necessary. However, even if the gift is $5, I would acknowledge it.

There is a lot of confusion about what a charity is legally required to do in acknowledging gifts, but you are doing the right thing and following best practices by acknowledging everything.

A donor who contributes $250 or more is required to obtain an acknowledgment from the charity in order to substantiate and claim a charitable contribution deduction on a federal income tax return.  As a result of the Pension Protection Act of 2006 (”PPA”), the donor must obtain a receipt for a gift of any amount if the gift is made in actual currency, even a single dollar bill.  The acknowledgment must say whether any goods or services were received in return, and if so, the value of the goods or services.  The charity has no legal obligation to give such a receipt where it has not provided goods or services, but it is very bad public relations for a donor to be denied a deduction for a gift that was actually made.

For gifts of property, generally any property other than cash or publicly traded securities, worth more than $500, the donor needs an acknowledgment and must file a special Form 8283. The donor must generally obtain an independent appraisal to claim a deduction of more than $5000.  The PPA also provides new rules on reporting the sale or other disposition of such personal property gifts within three years of receipt.

The $75 figure relates to a rule that is legally binding on a charity.  If the charity receives a payment of more than $75 and provides goods or services in return (other than certain low cost souvenir type items), the charity is required to tell the donor/payer the value of the goods or services. The donor may deduct only the amount of the payment in excess of the value of the goods or services received.  The charity is not required to give this “quid pro quo” acknowledgment for payments of $75 or less, but the same deduction rule applies to the donor and it is clearly a best practice to provide the information for all.  (See Ready Reference Pages: IRS Requires Substantiation of Contributions”; “Charities Must Set Value on 'Quid Pro Quo' Gifts”.)

Wednesday, January 8, 2014

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