Taxation: Verify Contributions

NON-CASH CHARITABLE DONATIONS

 

Non-Cash charitible contributions are donations other than cash, such as clothng, furniture, electronics, vehicles, anything that the orgainzation may accept as a contribution that doesn't come from some kind of bank or dinancial institution.

Under audit, sometimes we are called upon to verify non-cash contributions we deducted on our tax returns, but we don't have any actual proof. A written summary is not proof. The IRS may accept your contemporaneous notes, but they don't have to. They are much more likely not to if it is an especially large deduction. Better to not completely rely on your legitimate, but not necessarily IRS acceptable charitable deduction notations. To solidify the deduction, especially if it is large, it is a good idea to get a letter of value verification, from the recipient organization, (or a professional appraisal of value if the donation is over $5,000) - in fact it is the law.

Of course it is always a good idea to get a receipt and some kind of determination of value at the time of the donation. Without a receipt, you really have no proof. If you failed to have a signed legitimate receipt of acceptance, or any real proof of value of substantial charitable deductions, and the IRS wants to see them, you may not be completely out of luck at audit since the organization can help you out after the fact if they want to do so, but it is better to do it right the first time.

"$5,000 Rule" on non-cash contributions

You may get away with poorly documented contributions under $5,000 to a single charitable organization if you can convince the auditor they are legitimate. If the total donated for a single year to one orgainzation is more than $5,000, and if the fair market value was not assessed and documented by a professional appraiser, it will be summarily dismissed by the auditor - unless they somehow miss it.

In other words, not only can't you go for an unappraised deduction of more than $5,000 of non-cash donations to an orgainzation, the total contributed to a single organization over several visits during the year can't exceed it either. So, four non-cash donations of say $3,500 to "Charity X" is equal to $14,000. Which is in excess of $5,000, and so not allowable in a single year without a legitimate appraisal of value. 

What to do? In these cases, the recipient charitable organization can write a letter to help you. They will only do this if they believe it is true. If they know you from previous visits, they are more likely to be willing to help. However without an appraisal, the IRS is not bound to accept it simply because they don't hav to do so.

When they don't know you, you may be able to convince them it is true because they know that many people donate items to charities and never see a human being. They know people just "dump it in the bin", so to speak, and never ask for a receipt.

Go to the charitable organization with another large donation and this time see a real human being. Since you are currently bringing in another large donation, representative of many past undocumented donations, they may be willing to help you.

Since you have been donating for years, tell them you have been doing this for years and although you documented it yourself, are afraid you may need better proof of it. They do know that people often use their unattended bins and never have genuine receipts. Ask for a letter, something like the following example on their letterhead:

 

"Good Deed Charity

Date

Thank you for your continual and generous donations over the years. Your contributions of high quality salable merchandise has greatly helped our organization achieve our stated goals. Although we never professionally appraised your donations, we estimate that the value of your many past donations were in excess of $20,000 for each of the past several years.

We thank you for this current donation valued at approximately $4,250 and look forward to your continued generosity and support in the future.

Thank you,

 

Signature

 

(Name and title of officer)"

 

If your chosen charity won't give you a number you like, or their policy won't allow it, you can be more vague if need be. For example instead of estimated value of $20,000, they might be more comfortable with "the descriptions of the donations we received were accurate and in the stated condition at the time we received them, and the values are reasonable and comporable to our estimates." 

Of course there are no guarantees when the IRS comes calling. Even a letter without an appraisal may not be enough for larger donations, but it is certainly an indication and a point to be negotiated. To go into an audit with just your honest word and notes is not the best idea. Always get verification for large charitable donations. If not when donated, then later makes it more difficult. The above letter verifies a donation for the current year and also to a certain extent, helps establish that substantial previous donations had been made.

There is more to it, sometimes you have to prove your cost, but generally the IRS does not go there. It is within the tax code to force verification of original cost and purchase dates, and if they want to they can, after all, they wouldnt' waste their time auditing Walmart or Amazon, bot for you, they might make time.

The verification by the recipient organization is the most important part of solidifying non-cash deductible charitable donations.