If a charitable entity qualifies to be classified as a 501(c) (3) organization, there are several requirements it needs to meet in order to qualify to receive donations or contributions from donors. The IRS Publication 1771, Charitable Contributions-Substantiation, and Disclosure Requirements provide a comprehensive explanation of the federal tax laws pertaining to charities that receive contributions as well as for the taxpayers that make these donations.
A donor needs to acquire a bank record or a form of written communication from the charity for any monetary contributions before the donor can claim a donation on his income tax return. Furthermore, the donor needs to acquire written acknowledgement from the charity for any donations above $250 before he can claim a donation in his tax return. In turn, the charity needs to give the donor a written disclosure if the donor receives services or goods in exchange for a single payment above $75.
If the donor makes a single contribution of more than $250 to a charitable organization but does not get a written acknowledgement then he will not be able to claim a tax deduction in his income return. However, there is no penalty for a charitable organization that neglects to acknowledge receipt of the donation.
Furthermore, a charitable organization needs to present to the donor a written disclosure statement for payments above $75 that are partly as a donation and partly as a payment for goods and services provided by the said organization. Such a donation is known as a quid pro quo contribution. The written disclosure statement should inform the donor the amount that is deductible on income tax returns is the excess amount contributed over the value of the goods and services that the organization has provided to the donor. In addition, the statement should provide a fair value (good faith) estimate of the goods and services provided to the donor. Organizations that do not meet this requirement will be penalized $10 for every contribution up to the sum of $5000 for every fundraising event.
When it comes to disposition of donated property of value higher than or equal to $5000, the organization that received the donation needs to file Form8282, the Donee Information Return form. The form is used to report information to the IRS and donors about the disposition of donated property within 3 years after the donor contributed the property in question. The original donee is required to sign Form 8283, Noncash Charitable Contributions, Sec. B. Donated Property Over $5000. The donor presents this form to the original donee so that he can claim a deduction while filing his income tax returns.
The successor donee is any other party that will take the position of the original donee after the property has been disposed of. Both the original and successor donee need to file the Form 8282 if and when they dispose the donated property within three years since the property was originally donated. The form has to be duly signed within 125 days after the disposition of the property in question.
The donee might also incur penalties if it is found that before disposition of the property, the property was not being used for its intended purpose. If this is found to be the case then the organization can incur a penalty of $10,000. The donee can also be penalized if it fails to file Form 8282 within the 125-day grace period, or includes incorrect information, or has not included all the necessary information. The fine is up to $50 per form if the donee is found guilty.
. If the donated property exceeds $5000 such as a vintage motorbike or publicly traded securities, then the donor must get a qualified appraisal for the contribution before the organization can dispose of the property. At this point, the charitable organization is not deemed credible enough to function as a qualified appraiser.