On August 6, 2008, the IRS issued proposed regulations that would change the rules regarding substantiation and reporting of charitable contributions (REG-140029-07). The rules would implement changes made by the American Jobs Creation Act, P.L. 108-357, and the Pension Protection Act of 2006, P.L. 109-280 (PPA ’06). The proposed changes would apply to charitable contributions occurring after the date the regulations are finalized.
The Service has asked for written comments on the proposed regulations to be received before November 5, 2008.
Cash Contribution SubstantiationPPA ’06 added Sec. 170(f)(17), which provides that no charitable contribution deduction is allowed for any monetary gift unless the donor maintains, as a record of the gift, a bank record or a written communication from the donee. The bank record or a written communication must show the donee’s name and the date and amount of the contribution (Prop. Regs. Sec. 1.170A-15).
The proposed regulations contain an exception to this rule for contributions of less than $250 made to a charitable remainder trust (Prop. Regs. Sec. 1.170A-15(g)). They also provide an exception for unreimbursed expenses of less than $250 that the donor incurs incident to the rendition of services to a charity (Prop. Regs. Sec. 1.170A-15(e)). However, the Service refused to follow the suggestion of one commentator and institute a blanket de minimis exception for small donations.
In cases where a bank statement does not include the name of the donee, the IRS says that the donor can satisfy the requirements of Sec. 170(f)(17) by providing along with the bank statement a photocopy (or other image obtained from the bank) of the front of the check, showing the name of the donee (Prop. Regs. Sec. 1.170A-15(b)(2)).
Noncash Contribution SubstantiationDonors who claim deductions for noncash contributions of less than $250 are required to obtain a receipt from the donee or keep reliable records (Sec. 170(f)(8)). The proposed regulations provide that donors who make noncash contributions worth more than $250 but less than $500 need only obtain a contemporaneous written acknowledgment and not other written records (Prop. Regs. Sec. 1.170A-16(b)).
Under Regs. Sec. 1.170A-13(f), donors who claim contributions of more than $500 but not more than $5,000 are required to obtain a contemporaneous written acknowledgment and file a completed Form 8283, Noncash Charitable Contributions. The proposed regulations do not alter this requirement. For noncash contributions of more than $5,000, donors are required to obtain a contemporaneous written acknowledgment, file a completed Form 8283, and get a qualified appraisal (Prop. Regs. Sec. 1.170A-16(d)). For contributions worth more than $500,000, the qualified appraisal must be attached to the donor’s return (Prop. Regs. Sec. 1.170A-16(e)). The proposed regulations specify that these substantiation requirements also apply to the return for any carryover year under Sec. 170(d) (Prop. Regs. Sec. 1.170A-16(f)(3)).
The proposed regulations also contain substantiation requirements for donations of motor vehicles, requiring the donor to attach a copy of the acknowledgment of the donation provided by the donee to Form 8323 (Prop. Regs. Secs. 1.170A- 16(c)(4) and (d)(2)(iii)).
Reasonable Cause for Failure to ComplyIf a donor fails to comply with the substantiation requirements of Sec. 170(f)(11) and the donor can show that such failure was due to a reasonable cause and not willful neglect, the property description and qualified appraisal requirements of Secs. 170(f)(11)(B), (C), and (D) will not apply (Sec. 170(f)(11)(A)(ii)(II)).
The proposed regulations provide that to meet the “reasonable cause” exception, the donor must submit a detailed explanation with his or her return of why the failure was due to reasonable cause and not willful neglect (Prop. Regs. Sec. 1.170A- 16(f)(6)). (The donor must have timely obtained a contemporaneous written acknowledgment and qualified appraisal, if applicable.) The proposed regulations supersede the “good faith omission” provision of Regs. Sec. 1.170A-13(c)(4)(H). The Service warns in the proposed regulations’ preamble that it anticipates strictly construing the reasonable cause exception.
Qualified Appraisals and AppraisersThe proposed regulations also spell out the definitions of “qualified appraisal” and “qualified appraiser” for purposes of Sec. 170(f)(11)(E). The proposed regulations generally adopt the substance and principles of the Uniform Standards of Professional Appraisal Practice, developed by the Appraisal Standards Board of the Appraisal Foundation, in defining “generally accepted appraisal standards.”
The proposed regulations define a “qualified appraiser” as an individual with “verifiable education and experience in valuing the relevant type of property for which the appraisal is performed” (Prop. Regs. Sec. 1.170A-17(b)(1)). Verifiable education and experience means the individual has successfully completed professional or collegelevel coursework in valuing the relevant type of property and has two or more years’ experience in valuing that type of property (Prop. Regs. Sec. 1.170A-17(b)(2)).
The proposed regulations did not adopt a commentator’s suggestion that “education and experience” be interpreted as “education or experience”—allowing appraisers with significant experience but little formal education to be qualified appraisers— but do define education broadly to include coursework obtained in an employment context.