IRS Is Not A 4-Letter Word?

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1 IRS Is Not A 4-Letter Word? -or- Keeping up with the finer points of IRS Rules & Regulations! John Ley Director of Information Services Development & External Affairs Southern Methodist University October 2005 CASE Alumni and Donor Records Workshop - San Jose, California 1

2 The Ever Necessary Disclaimer... What I am NOT: I am NOT an Attorney I am NOT an Accountant I am NOT giving legal advice What I AM: I am a 10 year employee in a University Development Office I am a veteran (and seasoned) Manager of Gift Processing I am someone with experience which I hope to share October 2005 CASE Alumni and Donor Records Workshop - San Jose, California 2

3 The Best Piece of Advice... The Biggest Thing I ve I Learned is: Your Accounting Office is your Best Friend! October 2005 CASE Alumni and Donor Records Workshop - San Jose, California 3

4 Whose Rules Do You Follow??? Internal Revenue Service (IRS) Council for Advancement and Support of Education (CASE) Your Institution Donor s s Wishes October 2005 CASE Alumni and Donor Records Workshop - San Jose, California 4

5 Various Types of Credit Hard Credit Total # of hard credits must equal gift amount Some Institutions have one 100% hard credit Other Institutions have two 50% hard credits, etc. Soft or Vehicle Credit As many and to whom you wish (internal) Whomever your institution wishes to credit for the gift Recognition Credit Possibly to only one entity Whom do you ultimately want to give credit? October 2005 CASE Alumni and Donor Records Workshop - San Jose, California 5

6 Definition of a Donor Bruce Hopkins defines donor as the maker of a donation - a transferrer to a donee. The IRS defines a donor as someone who makes a contribution directly to a qualified organization or legal representative of that organization, for the use of a legally enforceable trust for that organization or in a similar legal arrangement. It must NOT be set aside for use by a specific person. October 2005 CASE Alumni and Donor Records Workshop - San Jose, California 6

7 Another Definition of a Donor Management Reporting Standards for Educational Institutions defines donors as those individuals or organizations that transmit a gift or grant to a qualified institution. In those cases where a contribution passes through several entities, the last of the entities through which it passes before being received by the donee should be cited as the donor. October 2005 CASE Alumni and Donor Records Workshop - San Jose, California 7

8 Who is the Donor? Who would you record as the legal donor in the following situation? Check received from: John Doe, MD Inc. Does John Doe, the person, or John Doe, MD Inc., the business, receive the legal credit? John Doe, MD Inc. with soft credit to John October 2005 CASE Alumni and Donor Records Workshop - San Jose, California 8

9 Who is the Donor? Who would you record as the legal donor in the following situation? Check received from the Charitable Gift Fund of Fidelity Corp., indicating that we should send an acknowledgment to Jane Smith. Who gets the legal credit: Jane Smith or the Charitable Gift Fund? It Depends! Donor Advised Fund vs. Donor Directed Fund October 2005 CASE Alumni and Donor Records Workshop - San Jose, California 9

10 Who is the Donor? Who would you record as the legal donor in the following situation? Check received from Bob Jones with a note explaining that it is actually a gift from Sally Johnson. Who gets the legal credit: Bob Jones or Sally Johnson? Bob Jones with on-behalf-of soft-credit to Sally October 2005 CASE Alumni and Donor Records Workshop - San Jose, California 10

11 IRS Regulations (complicated???) Omnibus Budget Reconciliation Act of 1993 added Internal Revenue Code section 170(f)(8) IRS clarification to charities and individuals found in a new publication, 1771: Charitable Contributions - Substantiation and Disclosure Requirements IRS final and temporary regulations issued on 10/12/95 to clarify(?) the clarification IRS final FINAL regulations issued on 12/16/96 Two primary areas of interest/concern: Written acknowledgement requirements; Value of Goods & Services (quid pro quo) October 2005 CASE Alumni and Donor Records Workshop - San Jose, California 11

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13 Written Acknowledgments Required for all contributions of $250 (except quid pro quo- $75) or more in order to claim a charitable deduction. Canceled checks are no longer sufficient. Donor is responsible for obtaining. Substantiation to donor must be contemporaneous (in time for tax filing). Charities can avoid providing this documentation if they report qualifying contributions directly to the IRS. Procedures for doing this have not been developed. October 2005 CASE Alumni and Donor Records Workshop - San Jose, California 13

14 More on Written Acknowledgments Written acknowledgments must provide the amount contributed (or description, not value, of non-cash property contributed) and a statement indicating whether or not any goods or services were provided in exchange for the gift. Payroll Deductions - Only applies to single deductions of $250 or more. Not required, period,, if employer evidences the amount withheld (pay stub) and provides a no goods or services statement (pledge card). October 2005 CASE Alumni and Donor Records Workshop - San Jose, California 14

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16 Safe Harbor Rules Quid Pro Quo receipts are not required when: Fair market value of all benefits received in connection with the payment does not exceed the lesser of 2% of the gift amount or $83 (2005) Gift is $41.50 (2005) or more and the cost of all benefits given does not exceed the IRS low-cost articles minimum of $8.30 (2005) The only benefit the donor received consisted of token items bearing the institution s s name or logo October 2005 CASE Alumni and Donor Records Workshop - San Jose, California 16

17 Safe Harbor Information For the U.S.- The Safe Harbor Rules change annually. They are published in the last IRB of each year (Internal Revenue Bulletin). Best- Join the Fund Services Listserv!!! October 2005 CASE Alumni and Donor Records Workshop - San Jose, California 17

18 Value of Goods & Services... Quid Pro Quo contribution: ANY gift where something is given in exchange for a benefit (goods or services) that exceeds the above limits. $75 is the amount at which a receipt is required. Disclosure must inform donor that the tax deductible amount is limited to the excess of the amount contributed over the value of goods or services provided. Must also provide donor with a good-faith estimate of the value of such goods or services. October 2005 CASE Alumni and Donor Records Workshop - San Jose, California 18

19 Value of Goods & Services... Disclosure must be made when contribution is solicited or received (note difference in timing for general acknowledgment rules). Up to a $10,000 penalty per failure to disclose or improper disclosure for your organization AND your organization s President, Chairperson or Leader (CEO). Goods or services of de minimis value excluded, as well as certain membership benefits. October 2005 CASE Alumni and Donor Records Workshop - San Jose, California 19

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21 Auctions A donor contributing an item to be used in a charity auction is eligible for a tax deduction related to the item donated. Provide donor with a Gift-In In-Kind receipt. Items purchased at auction: Only the amount, if any, in excess of the fair market valued of an item purchased can be considered a charitable contribution. October 2005 CASE Alumni and Donor Records Workshop - San Jose, California 21

22 Gifts of Service & Discounts NOT tax-deductible! NOT reportable under CASE guidelines What about Donor Recognition? Do Not Feed to Accounting? Do Not Issue Gift Receipt! -or- Issue 1099 to donor Pay full amount, write check back to Institution Donor must show INCOME and CONTRIBUTION! Be Careful!!! October 2005 CASE Alumni and Donor Records Workshop - San Jose, California 22

23 References Determining the Value of Donated Property- IRS Pub pdf/p561.pdf Charitable Contributions- IRS Pub pdf/p526.pdf Charitable Contribution- IRS Pub pdf/p1771.pdf Substantiation Requirements- IRS Pub regs/td8623.txt Charity s s Guide to Donations- IRS Pub tege/pub4302.pdf October 2005 CASE Alumni and Donor Records Workshop - San Jose, California 23

24 More References Donors Guide to Donations- IRS Pub tege/pub4303.pdf Updates on Disclosure and Substantiation Rules tege/topic-g.pdfg.pdf Documents listed on the CASE website (scroll down to: Advancement Services News and Research ) Corporate Sponsorships Charitable Contributions- IRS Final Rule IRS Penalties for non-profits More to come October 2005 CASE Alumni and Donor Records Workshop - San Jose, California 24

25 References (Canada) Gifts in kind to Charity and Others IT 297R2 arc.gc.ca/e/pub/tp/it297r2/it297r2-e.html Gifts and official donations receipt IT 110R3 arc.gc.ca/e/pub/tp/it110r3/it110r3-e.html Who is the Donor? CPC arc.gc.ca/tax/charities/policy/cpc/cpc-010-e.html Proposed Guidelines on Split-Receipting - IT News # 26 arc.gc.ca/e/pub/tp/itnews-26/itnews-26-e.html Tax advantages of donating to Charity CES arc.gc.ca/tax/charities/policy/ces/ces-009-e.html Updates on Disclosure and Substantiation Rules IT Newsletter arc.gc.ca/tax/charities/newsletters-e.htmle.html October 2005 CASE Alumni and Donor Records Workshop - San Jose, California 25

26 Questions & Answers October 2005 CASE Alumni and Donor Records Workshop - San Jose, California 26

27 IRS Is Not A 4-Letter Word? -or- Keeping up with the finer points of IRS Rules & Regulations! John Ley Director of Information Services Development & External Affairs Southern Methodist University October 2005 CASE Alumni and Donor Records Workshop - San Jose, California 27