IRS Issues Final Regulations Providing Substantiation Rules for Charitable Contributions

IRS and Treasury have released final regulations (T.D. 9836) regarding substantiation and reporting requirements for cash and non-cash charitable contributions. The final regulations, which were originally proposed in 2008, provide guidance to individuals, partnerships and corporations that make charitable contributions. The final regulations include new definitions related to a qualified appraisal, discuss recordkeeping requirements for all cash contributions, and address substantiation requirements for specified non-cash contributions. The regulations are generally effective as of July 30, 2018.

Final Regulations

Qualified Appraisal

The final regulations draw specific parameters around the term qualified appraisal.  Appraisals are to be performed by a qualified appraiser according to the substance and principles of the Uniform Standards Board of Professional Appraisal Practice (USPAP). A qualified appraiser is defined as an individual with verifiable education and experience in valuing the relevant type of property for which the appraisal is performed. Verifiable education and experience means the individual has successfully completed professional or college-level coursework in valuing the relevant type of property and has two or more years’ experience in valuing that type of property or has earned a recognized appraiser designation. The regulations provide for a transitional period through the end of 2018 to apply the education and expertise requirements for appraisers.

Cash Donations

A new recordkeeping requirement is imposed by the final regulations for all cash contributions, regardless of amount. Specifically, no charitable deduction is allowed for any cash, check or other monetary gift, unless the donor maintains, as a record of the gift, a bank record or written communication from the donee, showing the name of the donee, the date of the contribution, and the amount of the contribution. These requirements are in addition to rules that require a contemporaneous written acknowledgement for contributions of $250 or more.

Non-Cash Donations

Additional substantiation requirements apply when donations involve property. For donations of property under $250, the donor must obtain a receipt from the donee or keep reliable records. Donations of property of at least $250 but not more than $500 require a contemporaneous written acknowledgement. For a donation of more than $500 but not more than $5,000, the taxpayer must have a contemporaneous written acknowledgement and file Form 8283, Noncash Charitable Contributions.

The Takeaway

The final regulations provide needed guidance regarding the substantiation and reporting requirements for taxpayers making charitable contributions. The regulations are generally effective as of July 30, 2018, although a transition rule applies to the appraisal requirements so that they are effective only to contributions made on or after January 1, 2019.  Given the high number of recent cases in which taxpayers have been denied a charitable deduction for not following the various substantiation requirements, regardless of whether there was any dispute as to whether charity actually received property or the value of that property,  strict compliance with these rules is critical.