Giving season is upon us, so this seems like a good time to review these guidelines. Organizations that do not follow these guidelines can be fined $10 per donation, up to $5,000 per fundraising event or mailing. In any case, it shows lousy business sense not to acknowledge gifts (think of it as a thank you note); further, donors generally cannot deduct gifts of $250 or more on their tax returns unless they receive an acknowledgement from the organization.
There are a lot of different cases to consider, some simple and some not so simple. Let's start gently:
Cash gifts of less than $250 with no benefits to the donor – Donors can self-substantiate if they have a canceled check or some other sort of receipt, including an acknowledgment from the charity. Charities are not required to acknowledge such gifts, but again, think thank you note. Charity acknowledgments can be a letter, postcard or email and must contain the following elements:
- Name of the organization
- Amount of the cash contribution
- Date of the donation
- A statement that no goods or services were provided by the organization to the donor in return for the contribution
- The acknowledgement must be contemporaneous, meaning that the donor must have possession of the acknowledgement before filing a tax return deducting the contribution
Cash gifts of $250 or more with no benefits to the donor – Organizations must provide acknowledgment of these gifts, including the elements listed above, and donors must keep such acknowledgements in order to deduct the donation on their tax returns. An organization may acknowledge each contribution of $250 or more separately, or it may provide an annual summary listing all donations of $250 or more.
What if goods and services were provided? – If the fair market value of the benefits received does not exceed the lesser of 2 percent of the donation or $102, or if the donation is at least $51, and the benefits received are items with the organization's logo (calendars, coffee mugs, etc.) with a fair market value of $10.20 or less, the IRS considers these benefits insubstantial. The entire contribution is considered tax-deductible. So, for example, if a donor gives an organization $1,000 and receives a gift with a value of $20, this is exactly at the 2 percent limit, and the entire contribution is tax-deductible. If the gift though, was set of DVDs with a fair market value of $60 (6 percent of the contribution amount), the charity would need to mention this in the acknowledgement, something like "Thank you for your gift of $1,000 on November 19, 2013. In exchange for your contribution, we gave you a set of DVDs with a fair market value of $60."
There is an exception for some membership benefits if the cost of membership is $75 or less. They include things like free parking, gift shop discounts, and free or discounted admission to organization events (as long as the fair market value is at or below the $10.20 limit). If an organization provides benefits of any sort for a donation exceeding $75, it must acknowledge the donation and give a good-faith estimate of the fair market value of benefits received, and inform the donor that deductibility is limited to the difference between the amount of the contribution and the fair market value of the benefits.
What about the donation of property rather than cash? This can get complicated quickly! Individual donors should take a look at Publication 526 , "Charitable Contributions", and Publication 561, "Determining the Value of Donated Property". Organizations receiving such donations will be required to sign part of Form 8283 acknowledging that they have received the property (although they are not passing judgment on whether the fair market value assigned to the property by the donor is reasonable or not).