As the calendar year draws to an end, charities (and ideally, donors) are focused on year-end donations and tax deductions. Here are a few scenarios for U.S. charities to keep in mind. (Note: I am not a lawyer. When in doubt, contact an attorney who specializes in nonprofit law or contact the IRS for a ruling.)
Let's say the following donations will be processed by different nonprofits in the United States on Jan. 2, 2012:
- A check mailed (and postmarked) on December 29th that arrived in the office on January 2nd.
- A voice mail donation via credit card left December 29 (yes, it happens). A staff member heard the message on Jan. 2 and charged the credit card that day.
- An online donation made on December 31st. The credit card was charged immediately. The nonprofit was notified of the gift on Jan. 2.
- An online donation made on December 31st to a different charity. That charity's online giving system did not charge the credit card immediately -- instead it sent an email (ideally, an encrypted one) to a staff member that the donation needed to be processed. The staff member charged the credit card when she returned to the office on January 2nd.
Which tax year are they each for?
The answers below are based on IRS Rules and Regulations: What You Need to Know to Stay Out of Trouble by Alison L. Paul, Executive Director of the Montana Legal Services Association, from the book Advancement Services: A Foundation for Fund Raising, 2nd ed., published by the Council for the Advancement and Support of Education.
- "The IRS has stated that a charitable gift made by check is complete at the time the check is delivered or mailed, provided the bank eventually honors the check." The check would be considered a 2011 charitable contribution even though the nonprofit did not receive the check and the funds did not clear the bank until January 2012.
- "A gift made by credit card payment is complete when the charge is made." (Note that is doesn't matter when the credit card bill is paid.) The charge is considered made when processed by the recipient. So if the charity did not process the charge until January 2012, the donor would be treated as making the gift in 2012 rather than 2011, as she intended.
- Unlike scenario 2, the online donation service charged the credit card immediately. Even though the nonprofit wasn't notified of the donation until 2012, the gift was "made" in 2011.
- Scenario 4 is the same as scenario 2. The credit card wasn't charged until January, so the gift is for 2012.
Now, nonprofits should not set themselves up as tax advisors. The donor is responsible for documenting their gifts in case of an audit. On the other hand, nonprofits are required to provide correct information to donors and can be fined for knowingly falsifying tax receipts.
For further information, see IRS Publication 526, Charitable Contributions, and Publication 1771, Charitable Contribution, Substantiation and Disclosure Requirements, and John Taylor's "Annual Date of Gift Message".