New Rules for Donations
Besides overhauling defined benefit and other
retirement plans, the Pension Protection Act of
2006 included several elements that affect
charitable giving and exempt organizations. CPAs
who provide tax and financial planning services to
individual clients or work with nonprofit
organizations should be familiar with the
following new provisions.
more information also see
From the Tax Adviser , JofA ,
Nov.06, page 80.)
charitable gift rollover for 2006 and 2007.
Individuals aged 70 1¦2 and
older may transfer up to $100,000 annually in 2006
and 2007 directly from an IRA to charity, and the
charitable gift counts toward minimum distribution
requirements. Because the distribution generates
neither taxable income nor a tax deduction, even
nonitemizers can benefit. State treatments vary.
donations now require specific documentation.
All charitable donations of
cash must be substantiated with a bank record or
written communication from the recipient,
regardless of the amount of the donation.
Previously, contributions of less than $250 did
not require a receipt or other documentation. This
requirement is effective for tax years beginning
after August 17, 2006.
of tangible personal property subject to
additional requirements. The
fair market value of gifts of appreciated tangible
personal property may be claimed only if the
recipient uses the property for its exempt purpose
for three years following the date the gift is
received. Otherwise, the donor can deduct only the
adjusted basis in the property. Tangible personal
property includes clothing and household items,
usually of declining value, as well as art works
and antiques that may appreciate in value. For
gifts of clothing or household items, the
deduction is limited to items in good used
condition or better. Donors can avoid the
good-condition requirement and IRS restrictions on
a single item with a claimed deduction of more
than $500 by including a qualified appraisal with
the tax return. Changes are effective for
contributions made after August 17, 2006.
Stricter requirements for appraisals and
appraisers. The definitions
of qualified appraisal and qualified appraiser
have been codified and revised for purposes of the
charitable deduction for donated property. The
revisions generally affect donors of property with
a fair market value in excess of $5,000, excluding
publicly traded stock, and some donors of clothing
and household items. Changes apply to appraisals
prepared for returns or submissions filed after
August 17, 2006.
restrictions and reporting requirements on
donor-advised funds (DAFs). A
DAF consists of contributions from a donor or
donors who continue to make recommendations for
distributions or investments. Distributions from
DAFs generally must be made to exempt
organizations. Distributions can be made to other
organizations only if an exempt organization has
expenditure responsibility for the transfer.
Payments to individuals and particularly donors
will be subject to penalties even if they are
reasonable. Additional restrictions have been
made on investments of DAFs. Most requirements
apply to tax years beginning on or after September
1, 2006. Organizations that sponsor DAFs, however,
must report on their next form 990 (years ending
on or after August 31, 2006) the number of DAFs
including aggregate information on assets,
contributions and distributions.
increased penalties enacted.
The new law makes wrongdoing more expensive, even
in areas where there was no change to basic
requirements, such as excess benefits, flawed
appraisals, understatement of tax based on
appraisals, DAF distributions or payments,
transactions by a principal donor with a
supporting organization and misuse of donated
Source: Gregory B. Capin,
CPA, is cochair of the AICPA Not-for-Profit
Organizations Expert Panel/Guide Task Force and a
partner of Capin Crouse LLP, a national firm
providing accounting and advisory services to