11 August 2008 Proposed Rules Address Substantiation, Reporting Requirements for Cash and Noncash Charitable Contributions The Service has issued proposed regulations (REG-140029-07) providing guidance on the substantiation and reporting requirements for cash and noncash charitable contributions under Section 170. The proposed regulations generally implement the substantiation and reporting requirements imposed by the American Jobs Creation Act (Jobs Act) and Pension Protection Act (PPA) for all cash and noncash contributions. The proposed regulations implement the requirements of Section 170(f)(17) as added by the PPA that no deduction is allowed for any monetary gift — regardless of the amount donated — unless the donor maintains a record of the contribution. A bank record or written communication from the donee that includes the name of the donee, and the date and amount of the contribution satisfies this requirement. This “either/or” requirement only applies to contributions of $250 or less. If the contribution being claimed is $250 or more, a bank record alone will not be sufficient substantiation — there must be a written acknowledgement from the donee. The proposed regulations do contain exceptions to the substantiation requirements for monetary contributions of less than $250 made to a charitable remainder trust and for unreimbursed expenses of less than $250 that are incurred incident to the rendition of services to a charitable organization. However, taxpayers who wish to claim deductions for these types of expenses are strongly advised to maintain records of the expenses incurred. As is the case under the current rules, the proposed regulations provide that donors who claim deductions for noncash contributions of less than $250 must obtain a receipt from the donee, or keep reliable records. The proposed regulations also do not make any changes to the provisions under Section 170(f)(8) and Treas. Reg. Section 1.170A.13(f) for donors who make contributions of $250 or more, but not more than $500, which only require a contemporaneous written acknowledgment from the donee(i.e., they are not required to obtain any other written records). For claimed contributions of more than $500, but not more than $5,000, the donor must obtain a contemporaneous written acknowledgment from the donee and file a completed Form 8283 (Section A) with the return on which the deduction is claimed. If the claimed contribution is more than $5,000, in addition to a contemporaneous written acknowledgement, the donor generally must have a qualified appraisal and Form 8283, Section A or B must be completed and filed with the return on which the deduction is claimed. The proposed regulations also contain specific requirements for motor vehicle contributions (Section 1.170A-16(c) and (d)). For claimed contributions of more than $500,000 a copy of the qualified appraisal must be attached to the return. The proposed regulations also provide that the substantiation documentation that must be submitted with a return also apply to the return for any carryover year under Section 170(d). Section 170(f)(11)(A)(ii)(II) as added by the PPA provides that the requirements of Sections 170(f)(11)(B), (C) and (D) (substantiation and reporting requirements for noncash contributions) do not apply if a donor can show that the failure to meet the requirements was due to reasonable cause and not to willful neglect. Under the proposed regulations, a donor wishing to satisfy the reasonable cause exception must submit with the return a detailed explanation of why the failure to comply was due to reasonable cause, and must have obtained a timely contemporaneous written acknowledgment and qualified appraisal, (if applicable). However, the proposed regulations supersede Treas. Reg. Section 1.170A-13(c)(4)(iv)(H), which provided that a taxpayer who failed to file an appraisal summary with the return may provide it within 90 days of a request from the Service. Treas. Reg. Section 1.170A-13(c)(4)(iv)(H) further provided that the deduction would be allowed if the donor’s original failure to file Form 8283 was a “good faith omission.” In the proposed regulations, this section is replaced and the Treasury and Service note that the “reasonable cause” exception will be strictly construed to apply only when the donor meets the requirements for the reasonable cause exception as specified in the proposed regulations. The proposed regulations incorporate many of the qualified appraiser requirements from the current regulations, but modify other provisions (e.g., the appraiser declarations required in the appraisal and on Form 8283). The proposed regulations also contain several new terms implementing the PPA requirements of a qualified appraiser under Section 170(f)(11)(E)(ii) and (iii). Generally, under the proposed regulations, a “qualified appraiser” must be an individual with verifiable education and experience in valuing the relevant type of property that is the subject of the appraisal. In response to comments regarding education and experience requirements for a qualified appraiser, the proposed regulations require that an appraiser’s evidence of education and experience must be verifiable as provided in Section 170(f)(11)(E)(iii)(I). Under the proposed regulations, a “qualified appraisal” is an appraisal document prepared by a qualified appraiser in accordance with the generally accepted appraisal standards (i.e., the substance and principles of the Uniform Standards of Professional Appraisal Practice (USPAP). Under the proposed regulations, no deduction is allowed unless the clothing or household item is in good used condition or better at the time of the contribution. The proposed regulations also provide that this rule does not apply to a contribution of a single item of clothing or household item which is NOT in good used condition or better for which the claimed deduction is more than $500, if the donor completes and files Form 8283 (Section B) along with a qualified appraisal with the return on which the deduction is claimed. If the item is in good used condition or better, then a Form 8283 (Section A or B) is required, however, in this case, a qualified appraisal is only required if the claimed deduction is $5,000 or greater. For donations of clothing and household items with claimed deductions of less than $250, the donor must obtain a receipt or maintain a reliable written record of the contribution that includes a description of the condition of the item. For claimed deductions of $250 or more, a receipt meeting the requirements of Section 170(f)(8) (contemporaneous written acknowledgement) is required. The proposed regulations state that the reporting requirements for noncash contributions that require submission of documentation with a tax return also apply to carryover years. Therefore, if a taxpayer claims a contribution that requires that substantiation be attached to a current year return under the proposed regulations, and a portion of that contribution is carried over to a subsequent year, the taxpayer should be sure to attach the substantiation to the subsequent year return in order to ensure that the claimed deduction will be allowed. Motor vehicle contributions are specifically referred to in the proposed regulations Section 1.170A(16)(c)(4) and 1.170A(16)(d)(2)(iii). Taxpayers should take note to follow these rules for contributions of motor vehicles. Taxpayers should be sure to note the new definitions for qualified appraisals and qualified appraisers. The proposed regulations are extremely specific and taxpayers should take care that education and experience are verified and that appraisals contain all required information as listed in the proposed regulations. Taxpayers should note that even small contributions, both cash and noncash, require that some form of documentation be obtained. Therefore, to avoid the disallowance of a deduction, it is advised that taxpayers ensure that proper documentation is kept in their files for every contribution, no matter how small. The ability to obtain a deduction due to reasonable cause after a return has been filed without proper documentation is significantly more restrictive under the proposed regulations than it was under the original regulations. Therefore, it is imperative that taxpayers follow the reporting and recordkeeping requirements precisely to ensure that claimed deductions are allowed. Taxpayers should also note that proper substantiation and attachment to a tax return does not automatically eliminate a valuation or appraisal from challenge by the Service.
Document ID: 2008-1185 | |||||||||||||||||||||
