How does the IRS substantiate charitable donations?

The Internal Revenue Service (IRS) may not take your claim of a charitable donation at your word. In some cases, the agency may require additional information to substantiate the claim. Just how the agency goes about substantiating the claim can vary, but three specific things the IRS tends to expect in these situations include:

  • Cash. A claim for a cash donation to a charitable organization can raise red flags. As such, taxpayers are wise to keep a record of communication or bank record to document the donation. This information should include the name of the organization, date and amount of the contribution as well as the name of the donee.
  • Property. Donations of real property can include everything from clothes to vehicles and other large items. The IRS generally requires a receipt for the donation of smaller items with a value under $250. The agency requires written acknowledgement for donations estimated at a worth of $250 to $500. Those between $500 and $5,000 in value require a written acknowledgement of receipt and a special tax form.
  • Appraisals. The IRS often requires an appraisal for any donation of property estimated to exceed $5,000 in value. This appraisal must be conducted by a qualified appraiser. The IRS defines a "qualified appraiser" as one who has "verifiable education and experience in valuing the relevant type of property for which the appraisal is performed." This basically translates to mean an individual with a professional college-level degree that applies to valuing property such as the claimed item and at least two years of experience in the field.

A failure to properly document charitable donations claimed on one's tax return can result in problems in the event of an audit. As such, anyone in this position is wise to seek legal counsel promptly to help protect their rights when undergoing an investigation by the IRS.

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