Sample Letter for Clients Who Make Charitable Donations

Estates & Trusts recently published an article that includes a sample letter financial planners can give to clients who are considering making a charitable donation. The letter informs the donor-client of the tax deadlines and reporting requirements of charitable donations. An excerpt from the client letter is below:

Dear [client’s name]:

The federal government encourages your generosity by allowing you to deduct your gifts to charities on your income tax return if you itemize. However, you must follow the IRS’s reporting and substantiation rules to assure your charitable deduction. I hope that this letter highlighting the IRS’s requirements will be helpful to you when preparing your federal income tax return for the year 2011 (due by April 16, 2012).

The rules are numerous—and overlapping. This letter addresses: (1) reporting requirements for noncash charitable contributions; (2) rules for hard-to-value property; and (3) receipts you need to substantiate cash and noncash contributions.

For some noncash charitable gifts, Form 8283 (non-cash charitable contributions) must be filed. That form and its instructions are enclosed. The form is the latest available today. Before filing your income tax return, I suggest that you check the IRS’s latest forms and instructions for any last-minute changes.

If your non-cash gifts for the year total more than $500, you’ll have to include Form 8283 with your income tax return. Section A—the simpler part of the form—is used to report gifts valued at $5,000 or under. Section A can be completed by you or your tax return preparer.

When the property’s value is more than $5,000 ($10,000 for closely held stock), you’ll generally need to have it appraised. The appraiser’s findings are reported in Section B of Form 8283. Those rules also apply if you give “similar items of property” with a total value above $5,000—even if you gave the items to different charities. The IRS says that “similar items of property” are items of the same generic type, including stamps, coins, lithographs, paintings, books, non-publicly traded stock, land and buildings. So, for example, if you have six paintings worth $1,000 each and contribute each one to six different charities, the appraisal rules would apply.

Special rule for publicly traded securities. You don’t need an appraisal or Section B of Form 8283 for gifts of publicly traded securities, even if their total value exceeds $5,000. But you must report those gifts (when the value is more than $500) by completing Section A of Form 8283 and attaching it to your return.

Qualified appraisal. A qualified appraisal is an appraisal document that is prepared by a qualified appraiser in accordance with generally accepted appraisal standards and otherwise complies with the qualified appraisal requirements.

Qualified appraiser. The requirements to be a “qualified appraiser” are stringent. The definition is critically important: no qualified appraiser, no deduction for property gifts valued over $5,000 (over $10,000 for closely held stock).

Conrad Teitell, Substantiating Charitable Gifts—Specimen Letter to Donor-Clients, Trusts & Estates, Nov. 28, 2011; and Andrew Hodes, Substantiating Charitable Gifts for Federal Income Taxes, Wealth Strategies Journal 2.0 (Beta), Dec. 29, 2011.

Special thanks to Jim Hillhouse (WealthCounsel) for bringing this article to my attention.