There are important disclosure requirements that a 4-H organization must follow in order to ensure the donations received can be claimed as a deduction by the donor on his or her federal income taxes. Failure to follow these rules may result in the loss of future donations.
For the complete guide see IRS Publication 1771, Charitable Contributions-Substantiation and Disclosure Requirements. (pdf)
There are two general rules that organizations need to be aware of to meet substantiation and disclosure requirements for federal income tax reporting purposes:
- A donor must have written acknowledgment from the receiving organization for any single contribution, either cash or in kind, of $250 or more before the donor can legally claim a charitable contribution on his/her federal income tax return.
- The receiving organization is required to provide a written disclosure to a donor, when goods or services are provided to the donor in exchange for a single gift in excess of $75.
Common Questions:
1. What type of written acknowledgment should be provided to donors?
Although the organization is not required to provide written acknowledgment of donations, given a donor’s need for documentation for gifts of $250 and greater, a written acknowledgment should be sent to each donor no later than January 31 of the year following the donation. Fundraising professionals tell us that a donor who receives a very prompt written thank you/acknowledgment is likely to donate again.
Letters, postcards, or computer generated forms with the following information are all acceptable means of sending acknowledgments. Information provided in the acknowledgment should include:
- Name of organization receiving funds.
- Amount of cash contribution.
- Description (but not the value) of non-cash contribution.
- A statement that no goods or services were provided by the organization in return for the contribution, if that was the case.
- A description and good faith estimate of the value of goods or services, if any, that an organization provided in return for the contribution.
It is not necessary to include either the donor’s social security number or tax identification number on the acknowledgment.
2. When does the value of goods and services need to be disclosed to donors?
The organization is required to provide a good faith estimate of the goods or services it provided to the donor for the donation. The donor must subtract the value of the services from the donation amount on their taxes.
Goods or services include cash, property, services, benefits or privileges. However, there are important exceptions when the item given to the donor is considered a token exception.
Token exceptions do not need to be reported in an acknowledgment. Token exceptions are insubstantial goods or services that a charitable organization provides in exchange for contributions. Goods and services are considered to be insubstantial if the payment occurs in the context of a fund-raising campaign in which a charitable organization informs the donor of the amount of the contribution that is a deductible contribution, and:
- The fair market value of the benefits received does not exceed the lesser of 2% of the payment or $76, or
- The donor payment is at least $38, the only items provided bear the organization’s name or logo (e.g., calendars, mugs, or posters), and the cost of these items is within the limits for "low-cost articles," which is $7.60.
Free, unordered low-cost articles are also considered to be insubstantial.
Example of a token exception: If a charitable organization gives a coffee mug bearing its logo and costing the organization $7.60 or less to a donor who contributes $38 or more, the organization may state that no goods or services were provided in return for the $38 contribution. The $38 is fully deductible.