The Nonprofit FAQ
| Are donations always tax deductible? |
| Putnam Barber wrote on March 20, 2004: The most common form of tax-deductible donation is a gift of cash to an organization that has been recognized by the IRS as a public charity under section 501(c)(3) of the Internal Revenue Code or to a church (churches do not have to apply for recognition if they meet other tests the IRS defines in its publications and rules). Under limited circumstances, gifts to other sorts of organizations may be deductible; those organizations will let prospective donors know of this possibility. If the gift is for more than $250, the donor must have a contemporaneous receipt from the recipient documenting the gift and listing any goods or services the donor may have received (for example, the value of the food at a benefit banquet). Without such a receipt, the deduction can be disallowed. Recipient organizations often send an acknowledgement letter that also serves as this receipt. The language of these letters needs to be considered with some care as discussed below. Gifts to nonprofits that have not been recognized, gifts of property (including used cars), and gifts that are very large in proportion to the donor's taxable income may not be fully deductible. They may not be deductible at all. There are strong sanctions in federal law, and in most states, against suggesting to a donor (or potential donor) that a gift can be deducted when the rules do not allow a deduction. If there is any doubt about how donors should view the tax consequences of their gifts, the recipient organization should get help in researching the question fully and be prepared to advise donors to get independent advice before claiming a deduction that might be challenged in an audit. Michael Wyland, of Sumption and Wyland (see http://www.sumptionandwyland.com) commented on this question in the Nonprofit email list (see http://www.rain.org/mailman/listinfo/nonprofit): I take a very literal reading of the regulations that even most nonprofit-oriented CPAs and attorneys don't share. In fact, the IRS' own Publication 1771 mistakenly uses the "is deductible" rather than "may be deductible" phrase when discussing donation acknowledgement letters. Posted 3/20/04; introduction revised 6/8/06 following feedback -- PB |