True story: The founder of the Jackson Hewitt tax prep chain wasn’t allowed to claim a $121,000 market value deduction for donating closely held Jackson Hewitt stock because he didn’t get the required appraisal and instead used the value at which the stock had been privately trading.
Like the story, we featured in part 1, this could easily have been avoided. While the charity can’t pay for the appraisal, they could have (and hopefully did) encouraged Mr. Hewitt to get the required appraisal. With that as a lead in, here are some more rules you need to know about documenting gifts.
- Recordkeeping for non-cash contributions. Recordkeeping for noncash contributions will depend on the value of the contribution.
Noncash contribution of $500 or less. The taxpayer must obtain a receipt from the organization showing the organization’s name, date and location of the contribution, and a sufficiently detailed description of the property.
Noncash contribution of more than $500. The taxpayer must have a written record showing the method of acquisition, the approximate date of acquisition, and the cost or adjusted basis, plus attach form 8283 to return for the year in which donation is made.
Donations of more than $5,000. The taxpayer must obtain an appraisal of the property, attach a completed form 8283 (which the organization must sign) to the tax return on which the property is claimed. An appraisal must meet certain requirements and is not optional. The donor must obtain the appraisal.
The donor must have the receipt in hand before filing his or her tax return. If obtained after filing, it is not contemporaneous. If the donor has no timely receipt, then the donor gets no deduction.
- An appraisal must be done by a qualified appraiser and contain information required by the regulations under the Internal Revenue Code. The IRS will scrutinize any large contribution to make sure an appraisal is attached that meets the requirements. The appraisal must be signed no earlier than 60 days before the gift and later than the due date of the taxpayer’s return. The effective date can be no earlier than 60 days prior to the gift and no later than the date of the gift. The taxpayer doesn’t need a formal appraisal for publicly traded securities. The taxpayer only needs to prepare a partial summary on form 8283.
- Nondeductible gifts. Organizations commonly get gifts such as “2 weeks in X’s vacation home in Wisconsin”. Such gifts are not deductible. The tax code considers this a partial interest in property. Partial interests in property are deductible only in limited circumstances such as through a charitable remainder trust or a charitable lead trust. While such gifts are welcome, don’t give the donor a receipt.
- 19The importance of gift acceptance policies. Many gifts, such donations of real estate and securities that are not publicly traded create special considerations and require additional investigation by the organization. For example, your organization would want to know about environmental hazards and title problems in a parcel of real estate. You can assist your staff and Board by drafting gift acceptance policies that will educate the Board and staff about these special concerns. We can assist in drafting these as well as advise on what types of gifts you might accept or not.
The rules for substantiating gifts provide many traps for the unwary. These past 2 posts provide an overview of the most common and important points to remember. If you have questions about a gift situation, please call for assistance.