| New
Tax Acts Toughen Rules for Noncash Charitable Contributions
By
Mark H. Levin
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. |