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Reviewing the substantiation rules
The need for nonprofits to prove that they are doing good rather than scamming the general public is an ongoing one. New regulations are passed every year, but at The Georgia Society of CPAs 2011 Nonprofit Conference, attorneys W. Marshall Sanders and Margaret W. Scott reviewed features of a tax law passed in 1993, Section 170(f)(8) of the Internal Revenue Code requiring donors and nonprofits to “substantiate” a contribution of $250 or more if a tax deduction is to be allowed.
The substantiation must include the following:
• The amount of cash contributed and, in the case of non-cash contributions, a description of the property.
• A statement of whether the organization provided any goods or services in consideration of the donor’s contribution.
• If the donee did provide goods or services (other than intangible religious benefits), a description and good faith value of the goods and services. If religious intangible benefits were supplied, a statement to that effect must be supplied.
There are other aspects of the law to consider:
• No particular format is required for substantiation.
• There is no “family foundation exception” to the rule of Section 170(f)(8).
• The burden is on the donor, not the charity, to obtain the substantiation.
• Unhappy taxpayers continue to litigate the rule, unsuccessfully.
• The Internal Revenue Service (IRS) rigorously enforces the rule.
To read the rest of the tips, visit the Nonprofit Management Tips page.