Encouraging donations is an important part of ensuring the success of a non-profit organization. In order to avoid penalties from the Internal Revenue Service and maintain exempt status, IRS requirements must be met and can vary based on the type of gift and its value. These requirements may include a written acknowledgement from the non-profit and an appraisal of the item. In addition, special rules apply if goods or services were received from the nonprofit in exchange for the donation or if the donee gifts automobiles, planes or boats.
Donations are tax-deductible for the donee only when made to a qualified non-profit organization. Generally, qualified organizations include charities, veteran associations, fraternities, sororities, nonprofit cemeteries, churches and government agencies. Most organizations, other than churches and government agencies, must apply to the IRS for exempt status before donations will be deductible. To determine if the organization can accept tax-deductible donations, visit the Exempt Organizations Select Check page on the IRS website.
For non-cash items worth more than $250, it is the donor's responsibility to request a written acknowledgement from the nonprofit in order to claim the contribution on his tax return. The acknowledgement must include the name of the organization, description of the non-cash donation, and a statement that no goods or services were given in exchange for the donation. If the nonprofit did give something in exchange for the donation, the nonprofit must provide the value of the goods or services provided. If the non-cash donation was for more than $5,000, the donor must also obtain an appraisal from a qualified appraiser.
When a donation over $75 is given in exchange for goods or services from the nonprofit, the nonprofit usually must provide a written disclosure statement. This type of donation is referred to as a quid pro quo donation. The written statement must inform the donor that his donation is only deductible to the extent that it exceeds the value of the goods or services he received, along with the fair market value of the goods or services. The IRS may impose a penalty on charities that do not provide written statements.
Cars, Planes and Boats
The IRS imposes special restrictions on donations of vehicles, which includes cars, planes and boats. Depending on how the nonprofit plans to use the donation, the deduction is based on either the fair market value of the vehicle or sale price. When the charity plans to use the vehicle, makes significant improvements to the vehicle, or donates it to a needy person, the donor may deduct the fair market value of the vehicle. However, if the charity will simply sell the vehicle, the nonprofit must provide timely notice of how much the vehicle sold for. In that case, the deduction is based on the actual sale price.
Elizabeth Rayne earned her J.D. from Penn State University and has been practicing law since 2009, advising clients on issues ranging from employment law to nonprofit management. For two years, she served as a contributing editor for the "Vermont Environmental Monitor."