Your congregation needs to know that a cancelled check is not sufficient documentation to qualify for a tax-deductible donation in excess of $250. They need to save the statements that you send to verify their donation, and the statements must include specific language to qualify for a charitable tax donation. Church Finance Today [link to article] detailed the results of a tax case, Darden v. Commissioner, TC Memo. 2012-140 (2012), where a married couple claimed charitable deductions of $25,171, with the vast majority being checks in excess of $250, written to their church. The IRS disallowed the tax deduction due to improper documentation, and the timing of the documentation. Here are the two most important things you need to remember so that your donors can claim their tax deduction:
- For donations in excess of $250, you must either state that ‘no goods or services were provided in exchange for the contribution other than intangible religious benefits,’ or you must estimate the value of the goods or services and state that amount in the acknowledgement. For example, if the donation includes a dinner, then you would state, “Thank you for your cash contribution of $250 that [church name] received on November 1, 2012. Your contribution included a dinner valued at $15.”
- All acknowledgements must be provided in a timely manner, prior to tax filing deadlines. The IRS calls this ‘contemporaneous.’
In the Darden v. Commissioner case, the church provided the thorough acknowledgements, but after the couple filed their tax return and after the due date (including extensions) for filing the return. The IRS rejected the tax deduction because the donation acknowledgement was ‘not contemporaneous.’ As a church, you must provide donation acknowledgements with the correct language in the time frame required.