The Charitable Contribution Deduction
Section 170(a) provides, subject to certain limitations, a deduction for any charitable contribution, as defined in § 170(c), payment of which is made within the taxable year.
A charitable contribution is a donation or gift to, or for the use of, a qualified organization. Moreover, it is voluntary and is made without getting, or expecting to get, anything of equal value.
Types of Qualified Organizations
To qualify for a charitable contribution deduction, you must contribute to a qualified organization. Qualified organizations include nonprofit groups that are religious, charitable, educational, scientific, or literary in purpose, or that work to prevent cruelty to children or animals. You will find descriptions of these organizations under Organizations That Qualify To Receive Deductible Contributions.
Generally, only the following types of organizations can be qualified organizations.
- A community chest, corporation, trust, fund, or foundation organized or created in or under the laws of the United States, any state, the District of Columbia, or any possession of the United States (including Puerto Rico). It must, however, be organized and operated only for charitable, religious, scientific, literary, or educational purposes, or for the prevention of cruelty to children or animals. Certain organizations that foster national or international amateur sports competition also qualify.
- War veterans’ organizations, including posts, auxiliaries, trusts, or foundations organized in the United States or any of its possessions (including Puerto Rico).
- Domestic fraternal societies, orders, and associations operating under the lodge system. (Your contribution to this type of organization is deductible only if it is to be used solely for charitable, religious, scientific, literary, or educational purposes, or for the prevention of cruelty to children or animals.)
- Certain nonprofit cemetery companies or corporations. (Your contribution to this type of organization isn’t deductible if it can be used for the care of a specific lot or mausoleum crypt.)
- The United States or any state, the District of Columbia, a U.S. possession (including Puerto Rico), a political subdivision of a state or U.S. possession, or an Indian tribal government or any of its subdivisions that perform substantial government functions. (Your contribution to this type of organization is deductible only if it is to be used solely for public purposes.)
Here are some examples of a qualified charitable contribution deduction. Example 1: You contribute cash to your city’s police department to be used as a reward for information about a crime. The city police department is a qualified organization, and your contribution is for a public purpose. Therefore, you can deduct your contribution.
Example 2. You make a voluntary contribution to the social security trust fund, not earmarked for a specific account. Because the trust fund is part of the U.S. Government, you contributed to a qualified organization. As such, you can deduct your contribution as a charitable contribution deduction.
Schedule A (Form 1040) required.
Generally, to deduct a charitable contribution, you must itemize deductions on Schedule A (Form 1040). The amount of your deduction may be limited if certain rules and limits explained in this publication apply to you.
Contributions of Property
If you contribute property to a qualified organization, the amount of your charitable contribution is generally the FMV of the property at the time of the contribution. However, if the property has increased in value, you may have to make some adjustments to the amount of your deduction.
You must keep records to prove the amount of the contributions you make during the year. Moreover, the kind of records you must keep depends on the amount of your contributions and whether they are:
- Cash contributions,
- Noncash contributions, or
- Out-of-pocket expenses when donating your services.
Cash contributions include payments made by cash, check, electronic funds transfer, online payment service, debit card, credit card, payroll deduction, or a transfer of a gift card redeemable for cash. You can’t deduct a cash contribution, regardless of the amount, unless you keep one of the following.
- A bank record that shows the name of the qualified organization, the date of the contribution, and the amount of the contribution. Bank records may include:
- A canceled check.
- A bank or credit union statement.
- A credit card statement.
- An electronic fund transfer receipt.
- A scanned image of both sides of a canceled check obtained from a bank or credit union website.
- A receipt (or a letter or other written communication such as an email) from the qualified organization showing the name of the organization, the date of the contribution, and the amount of the contribution.
Contributions of $250 or More
You can claim a deduction for a contribution of $250 or more only if you have a contemporaneous written acknowledgment of your contribution from the qualified organization or certain payroll deduction records.
Moreover, if you made more than one contribution of $250 or more, you must have either a separate acknowledgment for each or one acknowledgment that lists each contribution and the date of each contribution and shows your total contributions.
Amount of contribution.
In figuring whether your contribution is $250 or more, don’t combine separate contributions. For example, if you gave your church $25 each week, your weekly payments don’t have to be combined. Each payment is a separate contribution. If contributions are made by payroll deduction, the deduction from each paycheck is treated as a separate contribution.
Contemporaneous written acknowledgment (CWA)
IRC section 170(f)(8) requires the donee organization to issue a CWA to the donor. Organizations typically send written acknowledgements to donors no later than January 31 of the year following the donation. For the written acknowledgement to be considered contemporaneous with the contribution it must meet both of the following requirements.
- Meet all the tests described under Acknowledgment, earlier; and
- You must get it on or before the earlier of:
- The date you file your return for the year you make the contribution; or
- The due date, including extensions, for filing the return.
The CWA must meet these tests:
- It must be written.
- It must include:
- The amount of cash you contributed,
- Whether the qualified organization gave you any goods or services as a result of your contribution (other than certain token items and membership benefits),
- A description and good faith estimate of the value of any goods or services described in (b). If the only benefit you received was an intangible religious benefit (such as admission to a religious ceremony) that generally isn’t sold in a commercial transaction outside the donative context, the acknowledgement must say so and doesn’t need to describe or estimate the value of the benefit.
If the acknowledgment doesn’t show the date of the contribution, you must also have a bank record or receipt, as described earlier, that does show the date of the contribution. If the acknowledgment shows the date of the contribution and meets the other tests just described, you don’t need any other records.
Albrecht v. Commissioner
After the IRS conducts an IRS audit, the IRS will issue a notice of deficiency (NOD). A taxpayer has the right to sue the IRS in U.S. Tax Court when the IRS issues a NOD to the taxpayer. In the Albrecht case, the taxpayer and her late husband acquired a large collection of Native American jewelry and artifacts during their marriage. On or around December 19, 2014, petitioner donated approximately 120 items from this collection (donation) to the Wheelwright Museum of the American Indian (Wheelwright Museum).
The IRS disallowed the taxpayer’s charitable contribution deduction because the taxpayer’s CWA did not state whether the donee provided goods or services to the donor in conjunction with the donation/contribution.
The IRS audits charitable contribution deductions. If you have received an audit letter, contact a tax attorney today. We can help you prepare for an audit.