New Tax Acts Toughen Rules for Noncash Charitable Contributions

By Mark H. Levin

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FEBRUARY 2005 - The Working Families Tax Relief Act of 2004 (WFTRA) added additional reporting requirements for taxpayers making noncash charitable contributions over $500, which apply to such contributions made after June 3, 2004. Taxpayers making noncash contributions valued at more than $500 but less than $5,000 must attach to their return a description of the property donated and any other information as the Secretary of the Treasury may require.

Taxpayers making noncash contributions valued at more than $5,000 but less than $500,000 must, in addition to providing the documentation described above for a contribution of more than $500, obtain a qualified appraisal and attach it to the return, along with any other information as the Secretary of the Treasury may require. Taxpayers making noncash contributions valued at more than $500,000 must, in addition to complying with the above rules for a contribution of more than $5,000, attach a qualified appraisal to the return, along with any other information as the Secretary of the Treasury may require. If the noncash contribution is made by a partnership or S corporation, the reporting requirements are applied at the partnership or S corporation level, except that charitable deduction will be denied at the partner or shareholder level if the partnership or S corporation fails to comply with the reporting requirements.

Contributions of Used Automobiles, Boats, and Airplanes to Charity

The American Jobs Creation Act of 2004 (AJCA) has toughened the rules for donations of used automobiles, boats, and airplanes made after 2004, as well as imposed stricter contemporaneous substantiation rules. Under the AJCA, the deduction for automobiles, boats, or airplanes donated to charitable organizations, where the claimed value exceeds $500, depends upon the charity’s use of the vehicle. If the charity uses the vehicle in the furtherance of its activities, the taxpayer may take a charitable deduction equal to the vehicle’s fair market value. If, on the other hand, the charity sells the vehicle without any significant intervening use or material improvement (e.g., major repairs), the taxpayer’s charitable deduction may not exceed the gross proceeds from the sale of the vehicle.

The contemporaneous substantiation rule for vehicles donated after 2004 requires that the charity generate a detailed receipt showing the name and taxpayer identification number of the donor, the donee’s name, the date and location of the contribution, and the vehicle identification number (or similar number for a boat or airplane). In addition, the receipt must state whether the donee sold the vehicle without any significant intervening use or material improvement. If so, the acknowledgement must contain a statement that it was sold in an arm’s-length transaction between unrelated parties, state the gross proceeds from the sale, and note that the deductible amount may not exceed the gross proceeds.

Under these rules, any donor required to furnish a timely contemporaneous acknowledgement to a donor that either knowingly fails to furnish such contemporaneous acknowledgements or furnishes a false or fraudulent acknowledgement will be subject to a penalty. If the charity continues to use the vehicle in its activities, the penalty is equal to the greater of the claimed value of the vehicle multiplied by the highest personal income tax rate, or $5,000. If the charity sells the vehicle without any significant intervening use or material improvement (e.g., major repairs), the penalty is equal to the greater of the claimed value of the vehicle multiplied by the highest personal income tax rate, or the gross proceeds from the sale of the vehicle.


Mark H. Levin, CPA, is manager, state and local taxes, at H.J. Behrman & Company, LLP, New York, N.Y.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



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