Charitable contribution audit: acknowledgments and proof of gifts

How it starts

A letter about charitable giving usually asks you to document the deduction you claimed. It may name a few large gifts or the total. The request is for paperwork that shows who received your gift, what it was and when you gave it.

Start by listing every gift you deducted, organization by organization, before opening any folder. Then mark each as cash or noncash, because Publication 526 sets different proof for each. This list becomes the outline of your response and shows quickly which gifts are fully documented and which need a replacement acknowledgment.

What the IRS publication covers

IRS Publication 526 covers substantiation in tiers. For cash, it includes a written-acknowledgment rule at higher amounts. For noncash gifts, the requirements step up with the size of the gift. Only part of the substantiation text was reviewed for this page, so read the current edition for your tax year, because dollar tiers can change.

Here is what the reviewed portion says. For noncash items over the top tier you complete Section B of Form 8283 and the charity signs Part V. Clothing and household items not in good used condition or better are deductible only above a stated amount, and then with a qualified appraisal and Form 8283 Section B. Vehicles above a stated amount require Copy B of Form 1098-C or an equivalent statement, and mid-range vehicle gifts need a written acknowledgment.

Example: donated furniture and a church pledge

Imagine a household that gave a used sofa and dining set to a charity thrift store and made monthly gifts to a congregation. For the furniture, the useful records are a receipt from the charity, a description and photos of the items, and how you arrived at a value. For the monthly gifts, a year-end acknowledgment letter and bank statements line up well.

Another household might have given a car. Their file would center on Form 1098-C or the statement Publication 526 describes, because vehicle gifts have their own paperwork.

Records to gather

Collect what shows the gift and the charity's receipt of it.

Match each acknowledgment to the gift it covers. A letter that lists a total for the year may be enough for steady cash giving, but a noncash gift needs a description of what was given, so look for a receipt that names the items rather than only the organization. Also confirm the organization's name on the paper matches the one you listed, since small differences, such as a local chapter versus a national group, can cause confusion.

• Written acknowledgments from each organization
• Bank, card or check records for cash gifts
• Descriptions, dates and photos for noncash gifts
• Form 8283 and any appraisal where Publication 526 requires them
• Form 1098-C or an equivalent statement for vehicles

Valuation

Valuing donated property is its own task. For how to value donated property, see Publication 526 and the instructions for Form 8283. If an item was worth much less than you assumed, tell a qualified practitioner before responding so the response is accurate.

Keep a short written note for each noncash item showing how you arrived at its value, along with the date and condition when you gave it. Photographs taken before drop-off are especially helpful because they show the condition at the time. A note that you are not certain of a figure is better than a precise-looking number you cannot explain.

Mistakes to avoid

Do not send a charity's generic letter if it does not describe your gift. Do not claim a gift you cannot document; if the paperwork is missing, ask the charity for a replacement acknowledgment. Do not backdate anything.

Another common problem is mixing up the person who gets the benefit. Payments to individuals, even for a worthy cause, are different from gifts to an organization, so check that each recipient on your list is the charity named in the acknowledgment. Finally, do not group many small items into one vague line such as miscellaneous household goods without a list behind it.

Responding

IRS Audit Defense Pro is software that helps you organize your facts and draft a response letter you review and send yourself; it is not a law firm, CPA or enrolled agent. For this exam, a letter that lists each gift, the organization, the date, the amount or description, and the attached proof gives the reviewer a short path through your file.

Frequently asked questions

Sources

• IRS Publication 526: Charitable Contributions
• IRS: IRS audits

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