Most attendees make donations to their church or other organization for one reason or another. They usually claim their donations, be it monetary, property, labor, or goods on their annual tax return as a deduction. However, what most don’t realize is that if the organization to which they contribute is not a recognized qualified organization by the IRS, that contribution may not be tax deductible. Whether or not a contribution is deductible depends on whom it is given to, when it was made, what it was given for.
With the exception of a few examples, it is on the individual who made the donation to claim the deduction on their return, not the organization that received it. In most instances, the organization receiving the donation is not required to make specific filings with the IRS in regards to the donation, but rather merely to comply with the necessary documentation requirements recording its receipt. Making the statement that “your donation is tax deductible” is entirely correct as the matter really turns on that particular donor’s tax situation. The more appropriate thing to say would be that “your donation may be tax deductible.”
Deductible Donations and the IRS:
Only contributions to organizations the IRS refers to as qualified organizations are deductible on the donor’s tax return. These organizations fall within the confines of Section 501(c)(3) of the Internal Revenue Code consisting of primarily public charities. However, even without a letter of determination from the IRS, religious organizations are automatically considered to be qualified organizations.
California’s take on Donations:
Most charities and nonprofit organizations, including churches and other religious organizations, operating in California must apply for and receive a determination or acknowledgment letter from the State Franchise Tax Board in order to be recognized as tax-exempt by the State. Unlike the automatic qualification under the IRS Code, churches and other religious organizations, if they desire tax-exempt status in California, must apply for and be recognized as such.
As per the IRS and the State Franchise Tax Board, a donor cannot claim a tax deduction for any contribution of cash, a check or other monetary gift unless the donor maintains a record of the contribution in the form of either a bank record (such as a canceled check) or a written communication from the charity (such as a receipt or letter) showing the name of the charity, the date of the contribution, and the amount of the contribution. In addition, a donor cannot claim a tax deduction for any single contribution of $250 or more unless the donor obtains a contemporaneous, written acknowledgment of the contribution from the recipient organization.
An organization that does not acknowledge a contribution incurs no penalty; but, without a written acknowledgment, the donor cannot claim the tax deduction. Although it is a donor’s responsibility to obtain a written acknowledgment, an organization can assist a donor by providing a timely, written statement containing the following information:
- Name of the organization;
- Amount of cash contribution;
- Description (but not the value) of non-cash contribution;
- A Statement that no goods or services were provided by the organization in return for the contribution, if that was the case;
- Description and good faith estimate of the value of goods or services, if any, that an organization provided in return for the contribution; and
- A Statement that goods or services, if any, that an organization provided in return for the contribution consisted entirely of an intangible, (religious benefits) if that was the case
Deductible Donation acknowledgment:
A separate acknowledgment may be provided for every single contribution of $250 or more, or one acknowledgment, such as an annual summary, may be used to substantiate several single contributions of $250 or more. Letters, postcards, or computer-generated forms with the above information are acceptable. An organization can provide either a paper copy of the acknowledgment to the donor or an organization can provide the acknowledgment electronically, such as via an e-mail addressed to the donor. A donor should not attach the acknowledgment to his or her individual income tax return but must retain it to substantiate the contribution. Separate contributions of less than $250 will not be aggregated. An example of this could be weekly offerings to a donor’s church of less than $250 even though the donor’s annual total contributions are $250 or more.
The acknowledgment must describe goods or services an organization provides in exchange for a contribution of $250 or more. It must also provide a good faith estimate of the value of such goods or services because a donor must generally reduce the amount of the contribution deduction by the fair market value of the goods and services provided by the organization. Goods or services include cash, property, services, benefits or privileges. However, there are important exceptions as described below:
Insubstantial goods or services a charitable organization provides in exchange for contributions do not have to be described in the acknowledgment. Good and services are considered to be insubstantial if the payment occurs in the context of a fund-raising campaign in which a charitable organization informs the donor of the amount of the contribution that is a deductible contribution, and:
- the fair market value of the benefits received does not exceed the lesser of 2 percent of the payment or $102;* or
- the payment is at least $51,* the only items provided bear the organization’s name or logo (e.g., calendars, mugs, or posters), and the cost of these items is within the limit for “low-cost articles,” which is $10.20.*
- *The dollar amounts are for 2013.
If a religious organization provides only “intangible religious benefits” to a contributor, the acknowledgment does not need to describe or value those benefits. It can simply state that the organization provided intangible religious benefits to the contributor.
Generally speaking, intangible religious benefits are benefits provided by a tax-exempt organization operated exclusively for religious purposes and are not usually sold in commercial transactions outside a donative (gift) context.
Bear in mind that contributions required in exchange for a benefit to be received are not deductible:
Therefore, school tuition is never deductible as a charitable contribution. If the church school is partially or entirely supported by the church and there is no relationship between the amount contributed to the church by the parents, and the number of children attending the school, then contributions to the church may be deductible. However, if the “contribution” is based on the number of children attending the school, or it can be shown that parents who were not required to pay “tuition” contributed more to the church than non-parents of attendees, the IRS will conclude that this was simply a disguised method of paying tuition, and the deduction is likely to be denied in whole or in part.
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Disclaimer: Every situation is different and particular facts may vary thereby changing or altering a possible course of action or conclusion. The information contained herein is intended to be general in nature as laws vary between federal, state, counties, and municipalities and therefore may not apply to any given matter. This information is not intended to be legal advice or relied upon as a legal opinion, course of action, accounting, tax or other professional service. You should consult the proper legal or professional advisor knowledgeable in the area that pertains to your particular situation.