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Ask the taxgirl: Cash and Charitable Donations

November 29, 2008 · 11 comments

Taxpayer asks:

While we were out shopping, I put a $20 in the Salvation Army kettle in front of the store. I say we can take that as a deduction but my husband says no. Who is right?

P.S. I have a new digital camera riding on your answer.

Taxgirl says:

Gosh. I hope your old digital camera is working just fine… The answer is that your husband is right.

The IRS changed a number of rules effective January 1, 2007, for charitable giving. One of the rules is that all charitable donations of cash (or cash equivalent), no matter what the amount, must be supported by written documentation. This means that checks and credit card sales are generally okay so long as you can clearly identify the donation portion. Cash is okay, too, but only if you can get a receipt.

Handing cash over to an organization without getting a receipt? Not deductible.

This isn’t to say that you shouldn’t do it. I gave my kids a couple of dollars to put in the red kettle the other day (and the bell ringer let them each give the bell a go, which they thought was awesome). If you’re inclined to support charitable causes like the Salvation Army and Alex’ Lemonade Stand that may ask for cash on the street, don’t let the lack of a tax deduction keep you from doing it. You might consider giving a dollar or two on the street and then going home and writing a check or making a donation online – that way, you get the immediate warm fuzzies for making a donation on the street AND you get the benefit of the tax deduction for your larger donation.

I had a similar question last year about making donations to churches for needy families – make sure you check it out.

Speaking of, the end of the tax year is rapidly approaching. You only have a few more weeks to make a donation to a qualified charitable organization in order to claim your federal tax deduction. Why not double your impact by telling us about your favorite charity? Leave a note in the comments at this prior post (click here) and the charity that you name may get an additional contribution.

Like any good lawyer, I need to add a disclaimer: Unfortunately, it is impossible to give comprehensive tax advice over the internet, no matter how well researched or written. Before relying on any information given on this site, contact a tax professional to discuss your particular situation.

Have a question? Ask the taxgirl!

{ 7 comments… read them below or add one }

1 Robert D Flach November 29, 2008 at 4:13 pm

I have an interesting question on this subject.

Is the actual charitable contribution of cash without documentation forbidden in the Tax Code (as amended) – specifically stating that in order to be deductible there must be documentation – or is the new law that the taxpayer must provide adequate documentationto the IRS in the event of an audit?

I haven’t had a chance to actually read the specific Code myself.

Just curious.

Thanks!

TWTP

2 Kelly November 29, 2008 at 9:03 pm

That’s a great question! I checked. The answer is that there must be documentation to claim the deduction. It’s in the statute as follows:

H.R. 4, Subtitle B, Part I, SEC. 1217. MODIFICATION OF RECORDKEEPING REQUIREMENTS FOR
CERTAIN CHARITABLE CONTRIBUTIONS.
(a) RECORDKEEPINGREQUIREMENT.—Subsection (f) of section 170, as amended by this Act, is amended by adding at the end the following new paragraph:
‘‘(17) RECORDKEEPING.—No deduction shall be allowed under subsection (a) for any contribution of a cash, check, or other monetary gift unless the donor maintains as a record of such contribution a bank record or a written communication from the donee showing the name of the donee organization, the date of the contribution, and the amount of the contribution.’’.
(b) EFFECTIVEDATE.—The amendment made by this section shall apply to contributions made in taxable years beginning after the date of the enactment of this Act.

3 Robert D Flach November 30, 2008 at 8:48 am

Kelly-

Thanks!

I looked closer in the Tax Code itself and did indeed find IRC 170(f)(17) -

“(17) Recordkeeping
No deduction shall be allowed under subsection (a) for any contribution of a cash, check, or other monetary gift unless the donor maintains as a record of such contribution a bank record or a written communication from the donee showing the name of the donee organization, the date of the contribution, and the amount of the contribution.”

Thanks again.

TWTP

4 Vinny December 1, 2008 at 11:59 am

I wonder how many folks are going to get caught by this on audit in future, especially those who drop unidentified cash in church offering plates (or put the cash in pew envelopes but fail to put their name on the envelope). I doubt most churches, especially where the finances are handled by volunteers, are even aware of this relatively new provision – I would wager that if anyone gets nailed by this, it will be because the church failed to receipt the contribution properly.

There’s at least one case that was technically right on the letter of the law where the taxpayer got hosed by the $250+ substantiation requirement (Gomez, TC Summary 2008-93, 7/30/08) – everyone agreed the taxpayer had made the contributions and that the recipient was a bona-fide 501(c)(3) – but the charity (a church) didn’t issue a receipt with the “magic language” required by §170(f)(8)(B) until after the return was filed. Voila! – no deduction.

It’s not a big step from this case to a fact pattern where somebody puts $50 or even $20 in the plate every Sunday, everybody knows he does it and sees him do it every Sunday, but he lacks a record or acknowledgment meeting the requirements of §170(f)(17) and the deduction is denied. BTW, my reading of the statute is that there’s no contemporaneous requirement here like there is for the $250+ receipt, would you agree?

As an aside, on the question of gifts to a church for a needy family, that’s another extremely thorny issue, especially where the church basically acts as a conduit to make deductible what would not be deductible if given directly to the family. I’ve had plenty of experiences as a preacher’s wife where several people approached my wife, identifying a particular family that was in need, and then gave my wife or the church secretary either cash or a check made out to the church with a note that it was for X person or X family. In those situations, if I was present for my conversation, I had to put my hands over my ears and sing “la-la-la-la-la-la-la, I can’t hear any of this” in order to preserve my sanity.

5 Kelly December 1, 2008 at 12:50 pm

Thanks for the comment, Vinny. Are you saying that you don’t believe that there is a requirement for a contemporaneous receipt – or a receipt at all – for smaller cash gifts?

BTW, odd ‘war story’ about offering plates… In our neck of the woods in NC, there was an usher who would count and collect the cash every Sunday and after the amount was verified, would make the deposit for the church. Nobody questioned it (the dollar amounts were correct) until he was audited… He was keeping the cash, writing a check out to the church for the full amount for the entire congregation collection plate and then taking the full amount as a deduction on his personal return. Clever, but it ultimately caught up to him.

6 Vinny December 2, 2008 at 12:07 pm

What I’m saying is the way I read the documentation requirement in the statute, it’s an either/or test. There’s no de minimis test, but if we’re talking de minimis amounts it’s doubtful you’re itemizing deductions in the first place.

If you have a bank record you don’t need a written acknowledgment. If you don’t have a bank record, you need the written acknowledgment (i.e., a receipt) with charity name, date of donation, and amount of donation. So for true cash gifts, you’re going to need the written acknowledgment, since there’s no bank record in that case.

There is no mention in the statute of a requirement that either the bank record or the written acknowledgment be contemporaneous. The old regulations (§1.170A-13) mention contemporaneousness (is that a word?) as one indicator of the reliability of “other written records”, but that standard was thrown out by the change in the law.

I suppose a bank record would tend to be contemporaneous by its nature, but I think the following scenario would be technically OK under the new rules: individual makes a series of $249 cash donations to a charity in 2008, files his tax return on March 1, 2009, but doesn’t get a receipt/acknowledgment until sometime in July of 2009. Stretch it a bit further – taxpayer doesn’t get a receipt until he’s audited in August 2011 and he brings the receipt, with a date of August 2011, to the audit. In my mind, that works since the only requirement is that the taxpayer “maintain a record” of the contribution.

Still haven’t seen anything from the IRS defining a “bank record”. They have come out with notices saying that W-2s, payroll stubs, and pledge cards for United Way and other donations through payroll deductions count as written acknowledgments from the donee.

Anyway, that’s enough far-fetched theoretical junk for one day.

7 Vinny December 3, 2008 at 3:26 pm

OK one more thing. Treasury issued proposed regulations on the changes to the law in August. It defines bank record to include bank statements, EFT receipts, canceled check, scan of a canceled check downloaded from a bank website, and credit card statements.

The proposed regs also state that the substantiation (whether it’s a bank record or donee acknowledgment) must received contemporaneously by the taxpayer – same as the substantiation requirement for gifts of $250 and greater.

This is all in Proposed Reg. §1.170A-15, by the way.

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