Documentation, Contributions, and the IRS

As you do your end of year reporting to your contributors, you want to consider this important fact.  Documentation is becoming KEY for charitable contributions.  You do not want your contributors to be denied their otherwise eligible deductions to your congregation and its ministry. 

We all know that the IRS requires the church to issue a statement to the members each year showing the contributions given by that member to the church.  The statement must include the date of each contribution, the amount, and a description of the item donated, i.e. cash or property.

The statement must be received by the congregational member before they can claim the deduction on their individual tax return.

For the member, a check or bank record is required for all church cash contributions under $250.

For cash contributions to the church over $250, a written acknowledgement from the church is required.

For Payroll Deductions taken by the church from its employees, a pledge card AND W-2 paystubs are required by the member.

For noncash contributions less than $250, a written acknowledgement from the church or other reliable record is required.

For noncash contributions over $250, i.e. cars, boats, stock, art, etc., a written acknowledgement from the church is required.

For the church, the important pieces of this are that a WRITTEN ACKNOWLEDGEMENT must be given to the member before the due date of the member’s tax return AND it must include a statement regarding goods and services received in exchange for the contribution.

For example, many churches have fundraiser dinners, in which the member contributes monies to the church in exchange for a meal.  The contribution must then be broken down into the total contribution given minus the cost of the meal (goods the member received) for a net contribution number, which the member can then deduct on their tax return.

If no goods or services were received in exchange for a contribution, a statement needs to be included on the bottom of the member letter indicating that NO goods or services were received in exchange for the contribution.

Based upon IRS Notice 2015-48, the IRS is requiring this statement or the deductions can be denied.  We are beginning to see more and more court cases where the denial has taken place.