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How do we record gifts of payment of charitable expenses?

Your Legal Questions Answered

How do we record gifts of payment of charitable expenses?

A Board member wrote checks to our charity to cover a payroll cycle and a month's rent. In addition, she directly paid for online services out of her own pocket, and made a $2,000 online payment for our expenses directly from her bank account.  How do I categorize the latter two gifts, as “in kind gifts” or as “regular gifts”?  I am leaning towards “in kind” because the payments did not go through the organization’s systems.

Your generous donor is entitled to claim a charitable contribution deduction both for the gifts made “to” the charity and the gifts of payments made “on behalf of” the charity.  Since both types of payment were made in “cash” and not some other form of property, they would be considered “cash” gifts and not “in kind” gifts. 

The Form 990 annual tax information return does not use the term “in kind” gifts.  Although charities often talk about receiving “in kind” gifts for things like printing services (for which the printer can deduct only the cost of the paper and ink but not the value of the printing service) or office furniture, or shares of stock, the Form 990 distinguishes only between “cash gifts” and “non-cash gifts.”  The Form also permits a listing only of deductible contributions, not non-deductible contributions of volunteer services or free use of facilities, even though such gifts have real value to the recipient.  Whether or not the gifts “go through the organization’s systems” is not a criterion for classification.  The IRS asks only what portion of all reportable gifts are “non-cash” gifts.

For your donor to claim a charitable contribution deduction for the full amount of what she gave, she will need a contemporary written acknowledgment from the charity that the payments were made for its benefit and that no goods or services were received in return.  (See Ready Reference Page: “IRS Requires Substantiation of Contributions”)

Tuesday, July 11, 2023

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