The IRS has several requirements in order for donors to claim a tax deduction for charitable deductions. For example, as defined by the IRS, the donation must be a gift to, or for the use of, a qualified organization. Further, the donation must be voluntary and given without getting, or expecting, anything of value in return. For donors, certain record-keeping requirements must be followed that differ based on the dollar value of the donation.
Another requirement for donors involves the timing of the contribution. For tax purposes, charitable contributions can only be claimed in the calendar year that they were delivered to the charitable organization. The end of the calendar year, therefore, brings some pressure and challenges for churches trying to record and receipt charitable contributions for their donors.
According to IRS Publication 526, Charitable Contributions, a contribution is effective “at the time of its unconditional delivery.” While the unconditional delivery of actual cash contributions is pretty straightforward, other contributions can be made by check, or credit card, and can be delivered online, in person, or by mail. And gifts of property can present their own timing challenges.
As a result, the IRS has provided guidance to help determine when unconditional delivery occurs for various types of contributions. Here are some different types of gifts that a church might receive in December and how to properly handle timing:
Checks. A check that is mailed to a charity is considered delivered on the date that it was mailed. The postmark on the envelope should be used to determine the date. Here are some other points to consider:
- Postdated Checks: If a check is received by December 31, but postdated for January, the check is not considered received until it is available for the use of the church. In this example, the check should be recorded and receipted as a contribution in January.
- Bounced Checks: If a check is received in December but is returned by the bank for insufficient funds, it would be proper to correct the date of the donation when the check finally clears the bank.
- Mis-addressed Checks: If the donor mistakenly writes the wrong name on the payee line and the check must be returned and corrected, the contribution should not be recorded and receipted until the corrected check is received.
Text Message. The delivery date for contributions made by text message is the day of the text message—as long as the contribution is charged to the donor’s telephone or wireless account. If the text message triggers a charge on the donor’s credit card, the effective date of the donation is the date the credit card charge is processed.
Credit Card. The effective date of contributions by credit card is the date the charge is processed.
- Online Donations. Most online donations are processed at the time of the actual donation. Donors can use the date on the credit card statement to help substantiate the date of delivery.
- Credit Card Forms. Some credit card donations require additional processing by the church which will delay the delivery date. For example, even though a donor fills out an offering envelope or completes a form that authorizes the church to charge their credit card, the effective date of the contribution doesn’t occur until the church processes the credit card charge.
Pay-by-phone. The effective date of contributions made through a pay-by-phone account is the date the financial institution pays the amount. Donors can use the statement provided by the financial institution to help substantiate the date of delivery.
Stock Certificate. The effective date of a properly endorsed stock certificate is the date the certificate is mailed, or delivered to the charity’s agent.
Promissory Note. Contributions can be made by promissory note, but the effective date occurs when actual payments are made.
Options. Contributions of real estate options aren’t effective until the charity exercises the option.
Borrowed Funds. If a donor uses borrowed funds to make a contribution, the donor can claim a deduction at the time of delivery regardless of when the donor repays the loan.
For more information on how to properly handle and record contributions, see IRS Publication 526,Charitable Contributions.
Rollie Dimos, CIA, CISA, CFE, is the Director of Internal Audit and the Center for Leadership and Stewardship Excellence at the AG National Office. As an auditor in the government and nonprofit sectors, Rollie has been helping leaders assess the strength of their organizational controls for over 25 years. If you have a question about this article, you can contact Rollie at firstname.lastname@example.org.
Rollie is the author of two books: Integrity at Stake: Safeguarding Your Church From Financial Fraud and Balanced Budget, Balanced Life. Using real-life fraud cases, Integrity at Stake helps churches assess their internal controls and minimize the risk of fraud. In Balanced Budget, Balanced Life, Rollie helps the reader create a personalized financial plan to achieve the balance between saving enough to live on and spending to enjoy a life worth living.