Per fiscal year, taxpayers provide completed tax organizers detailing the total sum claimed for non-cash contributions. In general, a taxpayer includes blank certificates and doorknob hangers for charity items that he or she picks up or drops off. At some times, the valuation of the donated items is specified without any explanation of how the fair market value was determined. Taxpayers are generally unaware of the provisions of Section 170 and other rules governing non-cash contributions. Furthermore, charities make little attempt to assist them in conforming to and complying with the appropriate laws. This makes taxpayers unable to complete the return form 8283, Noncash Charitable Contributions. Therefore, to find a solution, research is carried out in a case of Mr. and Mrs. Nice on their contribution. The study will help bring in light the concept of on valuation and ethics related to donation.
Mr. and Mrs. Nice have made substantial donations of household and clothing to Goodwill industry. However, they have little knowledge on how to qualify for valuation and deductions despite having all the necessary documentation. The clients realized the tax benefit present in making noncash donations to charity. Some of the common documents taxpayers have are the blank receipt, and doorknob hanger that does not contain sufficient information for a complete tax return. In order to qualify for deductions, form 8283 is always a necessity that needs to be completed. After filling the form, the return preparers are then left with the task of figuring out on how to satisfy the client.
The total donation for Mr. and Mrs. Nice was $15,000. According to the AICPA code of professional conduct, form 8283 must be completed for over $500 noncash contributions. The taxpayers must also show the highest level of fidelity on when filling the document (Ackerman, et al. 651). The information to be disclosed includes with the highest level of fidelity are the date of donation, original cost and the time of acquisition. Also, the fair market value is calculated and how it was determined. The additional information is of necessity to the return preparer to satisfy the substantiation requirements. The taxpayer is also expected to fill a questionnaire from the return preparer to disclose all the available facts about the donated item. Also, publication 561 of determining the value of donated property and 526 of the charitable contribution are needed as provide insight to requirement.
The non-cash contributions are categorized on how they are treated on valuation and deductions (Dale. et al. 331). For deduction on property valued less than $250, the taxpayer is required to keep the receipt showing the date, location, and name of the charitable organization. An acknowledgment note should also come from the receiving organization with the same information from the donor. Donations valued at $249-$499, all the requirement from the donations less than $250 should be met. In addition, a written acknowledgment should be received from the receiving institution stating whether they also gave something in return. The value of the goods offered must also be estimated in good faith. The acknowledgment should be received on or before the date of filing returns. For the valuation that ranges from $500-$4999, all the requirement of goods valued at $250-$499 should be met plus an addition of information on how the goods were acquired. In the case of Mr. and Mrs. Nice, the category of their donation of $15000 is in the category of property valued in excess 5000. For tax deduction, they must meet all the requirement in all categories plus a qualified additional appraisal of the items. Therefore, with all the stated requirements, Mr. and Mrs. Nice are able to understand how their donation will be valued and possible deductions.
The provisions for a tax deduction on non-cash donations are vital to taxpayers. In most cases, the charitable organizations collecting the non-cash goods do not update taxpayers on proper documentation. This ends up misleading the taxpayers. Communicating the proper documentations on magazines and newspapers may be of great assistance to taxpayers.
Ackerman, Deena, and Gerald Auten. “Tax Expenditures for Noncash Charitable Contributions.” National Tax Journal 64.2 (2011): 651.
Dale, Harvey P., and Roger Colinvaux. “The Charitable Contributions Deduction: Federal Tax Rules.” Tax Lawyer 68.2 (2015): 331.