T.D. 9836, 7/27/2018; Reg § 1.170A-1, Reg § 1.170A-14, Reg § 1.170A-15, Reg § 1.170A-16, Reg § 1.170A-17, Reg § 1.170A-18, Reg § 1.664-1, Reg § 1.6050L-1
IRS has issued final regs regarding substantiation and reporting requirements for cash and non-cash charitable contribution deductions that, while largely following 2008 proposed regs, contain several new rules.
Background. Pursuant to the American Jobs Creation Act of 2004 (Jobs Act) and the Pension Protection Act of 2006 (PPA), the following substantiation/reporting rules apply for cash and noncash charitable contributions:
…A taxpayer can’t deduct any contribution of a cash, check, or other monetary gift unless he maintains as a record of the contribution a bank record or a written communication from the donee organization showing its name, plus the date and amount of the contribution. (Code Sec. 170(f)(17)) For contributions of property (other than cash), the taxpayer must have a receipt from the donee and keep records showing the donee’s name and describing the gift. (Code Sec. 170(f)(11))
…No charitable deduction is allowed for any (cash or property) contribution of $250 or more unless the taxpayer substantiates it by a contemporaneous written acknowledgment (not just a cancelled check) from the donee (or its agent). (Code Sec. 170(f)(8)(A))
…For noncash contributions that are:
- more than $500 but not more than $5,000, the donor must attach to its return a description of the contributed property. This requirement doesn’t apply to a C corporation. (Code Sec. 170(f)(11)(B))
- more than $5,000 but not more than $500,000, the donor must obtain a “qualified appraisal” and attach to its return information about the property and appraisal (i.e., appraisal summary) as required by IRS. (Code Sec. 170(f)(11)(C))
- more than $500,000, the donor must attached a qualified appraisal to its return. (Code Sec. 170(f)(11)(D))
The above requirements in (2) and (3) don’t apply to certain categories of contributions, including qualified vehicle donations. (Code Sec. 170(f)(11)(A)(ii)(I)) IRS will disallow a deduction for property contributed if the above reporting requirements aren’t met unless the failure was due to reasonable cause. (Code Sec. 170(f)(11)(A))
…A qualified appraisal is one that is: (1) treated as a qualified appraisal under regs or other guidance issued by IRS, and (2) conducted by a qualified appraiser in accordance with generally accepted appraisal standards and any regs or other guidance issued by IRS. (Code Sec. 170(f)(11)(E)(i)) A qualified appraiser is an individual who has earned an appraisal designation from a recognized professional organization or has otherwise met minimum education and experience requirements under IRS regs; regularly performs appraisals for compensation; and meets any other such requirements prescribed by IRS. (Code Sec. 170(f)(11)(E)(ii)) However, an individual won’t be considered a qualified appraiser for any specific appraisal unless he demonstrates verifiable education and experience in valuing the type of property subject to the appraisal, and hasn’t been prohibited from practicing before IRS at any time during the 3-year period ending on date of the appraisal. (Code Sec. 170(f)(11)(E)(iii))
IRS issued proposed regs regarding charitable contribution substantiation and reporting in 2008. See Proposed regs explain strict charitable contribution substantiation & appraisal rules (8/14/2008).
Included in the proposed regs was a rule that provided that the following organizations would be treated, for purposes of determining who’s a donee that can provide a written communication as proof of a charitable donation, as donees even if the organization distributes the amount contributed to one or more organizations described in Code Sec. 170(c): (1) an organization described in Code Sec. 170(c); (2) an organization described in 5 C.F.R. 950.105 (a Principal Combined Fund Organization for purposes of the Combined Federal Campaign) and acting in that capacity. (Prop Reg § 1.170A-15(d)(1)(i))
Observation:United Way is an example of an organization described at (2) in the proposed reg.
Final regs. The new final regs generally follow the proposed regs but include the following changes and additions:
…Contributions to Combined Federal Campaign. The final regs adopt the general rule of the proposed regs that treats as a donee for purposes of Code Sec. 170(f)(8) and Code Sec. 170(f)(17) an organization described in Code Sec. 170(c) or a Principal Combined Fund Organization for purposes of the Combined Federal Campaign and acting in that capacity. (Reg § 1.170A-15(d)(2))
And, Reg § 1.170A-15(d)(2)(ii) provides that the name of the local CFC may be used instead of the name of the PCFO and may be treated as the donee organization for purposes of Code Sec. 170(f)(8) and Code Sec. 170(f)(17).
…Blank pledge card. IRS noted that it is a common practice for a donee organization to provide a blank pledge card that is then filled out by the donor. In the preamble, it stated that because a blank pledge card provided by the donee organization to a donor does not show the information required under Code Sec. 170(f)(17), it is not sufficient substantiation for a cash, check, or other monetary gift.
…Non-cash contribution reasonable cause exception. Prop Reg § 1.170A-16(f)(6) provided a reasonable cause exception to the various substantiation/reporting rules for non-cash contributions. It provided that, in order to show reasonable cause, certain specific information have to be submitted with the tax return. In Crimi, TC Memo 2013-51, a case in which the Tax Court held that the taxpayer’s failure to obtain a qualified appraisal was due to reasonable cause, the Court said that a reasonable cause inquiry requires that facts and circumstances must be judged on a case-by-case basis. In light of that tax withholding, the final regs do not contain a standard for the reasonable cause exception.
…Form 8283. Depending on the value of the non-cash contribution, various parts of Form 8283, Non-cash Charitable Contributions, must be completed and the form submitted with the tax return. The Preamble to the final regs provides that only Section B, part IV of Form 8283, which is completed for property valued at over $5,000, is a donee acknowledgment, and this acknowledgment only contains some of the information required by Code Sec. 170(f)(8)(B). Accordingly, even a fully-completed Form 8283 does not satisfy the requirements of Code Sec. 170(f)(8).
…Appraisals and appraisers. The following rules apply to appraisers and appraisals.
1. Attaching appraisal to carryover year returns. If an appraisal is required to be attached to the return for the contribution year, it must also be attached to the returns for the carryover years. (Reg § 1.170A-16(f)(3))
2. Satisfying verifiable education requirement.Code Sec. 170(f)(11)(E)(iii)(I) requires that an appraiser have verifiable education and experience in valuing the type of property subject to the appraisal.Prop Reg § 1.170A-17(b)(2)(i)(A) provides that an individual is treated as having education and experience in valuing the type of property if, as of the date the individual signs the appraisal, the individual has successfully completed (for example, received a passing grade on a final examination) professional or college-level coursework in valuing the type of property, and has two or more years of experience in valuing the type of property.
The Preamble to the regs provides that the reference to a passing grade on a final examination in Reg § 1.170A-17(b)(2)(i)(A) is merely an example of what is considered successful completion of professional or college-level coursework, and other evidence of successful completion may be sufficient. However, mere attendance at a training event is not sufficient, and evidence of successful completion of coursework is necessary.
3. Coursework providers. The proposed regs provided that coursework had to be obtained from professional or college-level educational institutions, appraisal organizations, or employer educational programs. The final regs add an additional category – recognized professional trade organizations. (Reg § 1.170A-17(b)(2)(ii))
4. Appraisal designation from a recognized professional organization. One of the ways to meet the Code Sec. 170(f)(11)(E)(ii) requirements of is to earn an appraisal designation from a recognized professional organization. The proposed regs listed specific organizations as examples of recognized appraiser organizations. Noting that it does not require or prefer the designation of any particular appraisal organization, IRS has removed the examples of specific organizations from the final regs. (Reg § 1.170A-17(b)(2)(iii))
…Limited application of regs. In the Preamble, IRS notes that the final regs apply only to income tax deductions for charitable contributions under Code Sec. 170 and do not apply, for example, to charitable contributions for estate or gift tax purposes.
…IRS valuation tables not acceptable. IRS provides various valuation tables in regs, etc., e.g., those for charitable remainder trusts. In the Preamble, IRS says that these tables are not acceptable substitutes for qualified appraisals to substantiate deductions for charitable contributions under Code Sec. 170.
Reg § 1.170A-15, Reg § 1.170A-16, and Reg § 1.170A-18 apply to contributions made after July 30, 2018. Reg § 1.170A-17 applies to contributions made on or after Jan. 1, 2019. For each of these regs, taxpayers may rely on the reg for contributions made after Aug. 17, 2006. (Reg § 1.170A-15(h), Reg § 1.170A-16(g), Reg § 1.170A-17(c), Reg § 1.170A-18(d))
In the Preamble, IRS notes that the effective dates of the Jobs Act and the PPA relating to substantiating and reporting charitable contributions precede the effective date of these final regs, and the Jobs Act and the PPA apply in accordance with their applicability dates.
References: For proving the right to deduct cash contributions, see FTC 2d/FIN ¶ K-3919; United States Tax Reporter ¶ 1704.50. For qualified appraisal and qualified appraiser for charitable contribution, see FTC 2d/FIN ¶ K-3964; United States Tax Reporter ¶ 1704.51.