by Rebecca A. Olson
The Pension Protection Act of 2006 passed tougher restrictions on everyday charitable contributions. This article highlights two of the new provisions of the act that affect both cash and non-cash donations to charitable organizations.
Donor recordkeeping requirements
The new tax act disallows any monetary contribution to a charitable organization, unless the donor maintains a bank record (i.e. cancelled check) or a written communication (i.e. receipt or letter) from the donee organization that shows the name of the organization, date of the contribution and the amount of the contribution. This provision applies to any contribution of money, regardless of the amount.
Donors may find it preferable to make donations by check rather than cash, as a cancelled check directly satisfies the new requirements by showing the name of the organization, date and amount of the contribution. A credit card statement showing the charge would also satisfy the new requirements as long as it shows date, name of the organization and amount.
As an example, taxpayers putting cash into the Salvation Army kettle would not be allowed a charitable contribution for the cash donated regardless of the amount, as their would be no record of the donation that would satisfy the new rules.
This requirement is in effect for tax years beginning after August 17, 2006. For calendar year taxpayers, that would be for 2007.
Contributions of clothing and household goods
The new act limits the amount of the deductions for clothing and household items (such as furniture, appliances, electronics, linens etc.) For an individual, partnership or corporation, no charitable deduction will be allowed for these types of donations unless the item is in “good” condition or better. In addition, the IRS has the authority to deny a deduction for items that have a minimal monetary value.
There are exceptions to the above rules. In the case of a single item for which a deduction of more than $500 is claimed, the deduction will be allowed as long as a qualified appraisal is attached to the taxpayer’s return. In this case, a taxpayer can claim the deduction for an item whether or not in “good” condition, as long as the amount claimed exceeds $500 and the appraisal requirement is met. Also, these rules do not apply to donations of food, artwork, jewelry or collections such as stamps or coins.
The goal of the new provision is to encourage the donation of clothing and household items that are of meaningful use to charitable organizations. Worn out, obsolete and broken items provide no value or benefit to the organization. Some organizations such as Goodwill and Salvation Army provide a standard “value list” to assist taxpayers in determining the value of their donations.
This requirement is in effect for all non-cash charitable donations made after August 17, 2006.
