On June 23, 2016, a U.S. Tax Court Summary Opinion concerning non-cash contributions resulted in the disallowance of deductions and penalties for the petitioners. The case, Perry W. Payne v. Commissioner, focused on the need for more thorough record-keeping when reporting non-cash contributions. Specifically, it held that single non-cash donations in excess of $250 in value need a contemporaneous receipt from the charity which includes a description and the value of the property donated.
The clarification of existing law provided by the court may have far-reaching effects for both charities and donors, since most charities do not provide valuations for donated items. Instead, the charitable organizations allow the donor to provide descriptions and values for the items contributed.
Main Points from the Case
- Contributions of $250 or more require a contemporaneous written acknowledgement from the donee.
- This includes a detailed description of the property donated.
- It must be obtained before the taxpayer files a return, or before the return due date.
- Donated property valued over $5,000 needs a qualified appraisal
- The above limits are applied to similar types of property, not individual items. For example, the $5,000 limit would be exceeded by a $2,600 car donated in January, along with another $2,600 car donated in December. Also, the $250 limit can easily be exceeded by donating large amounts after a garage cleanout, or a recent move.
- Donated property must be reported at fair market value (e.g. its price at a thrift store).
Advice for Best Practices
- Keep detailed records of all non-cash contributions, including the description and number of each item, and when they were donated.
- Maintain evidence of the method used to value your contributions. An example method is this Fair Market Value Sheet published by Goodwill.
- Obtain a signed receipt for each donation from charities.
- Make sure to get an appraisal for any similar types of property donated with a value over $5,000.
We will continue to monitor this situation and provide you with updates on additional decisions following this case. If you have any questions about this ruling or reporting non-cash contributions, reach out to us online by clicking here, or call 513-241-8313 to speak with a member of the Barnes Dennig team.