The Pension Protection Act of 2006 was signed into law on August 17, 2006.  It has a number of provisions that affect the treatment of charitable contributions, both from the donor’s perspective and from the recipient’s perspective.

Following these simple tips will help the ministry comply with the new requirements and ensure donor's receive the maximum tax advantage.

CASH DONATIONS

The provision that will probably most affect church-goers is the one that relates to cash donations.  Under prior law, individual contributions of cash could be substantiated by:

1. a canceled check, bank record, credit card statement;
2. a written acknowledgment (receipt) from the recipient organization; or
3. a reliable written record.

Many people give cash for Sunday school offerings, benevolence offerings, and spur-of-the-moment requests for donations.  Under the old law, the donor could note the contribution on a family calendar, PDA, or even on a scrap a paper with the date, amount, and recipient organization.  Those days are over.  Tax deductions will be allowed unless the donor can provide supporting documentation from a financial institution or from the recipient organization. Donors will not need to mail in the receipts with their tax return. Instead, they will need to keep receipts and other documentation with their copy of the return in the event of an IRS audit.  Churches that have not already instituted an envelope system to keep track of donations should do so now in order to report all cash contributions on the annual church giving statement.

NON-CASH DONATIONS

The new law also toughens the rules for non-cash donations.  Donated clothing or household items must be in “good used condition or better” to be deductible.  Household items include furniture, furnishings, electronics, appliances, linens, and similar items.  Items of minimal monetary value, such as used socks and underwear, are not deductible.  If the amount claimed for an item is $500 or more, the donor’s return must be accompanied by IRS Form 8283 and a qualified appraisal for the item.  The effective impact of this provision is that most people will limit their claimed deduction to less than $500 to avoid the hassle of obtaining the qualified appraisal.

DONATIONS FROM AN IRA

The Pension Protection Act does allow donors over 70 1/2 years old to donate money directly to the recipient organization from their IRA account.  The distributions will be tax-free and will count toward their required minimum distribution for the year.  An individual is allowed to donate up to $100,000 per year from his IRA.  Because the distribution is not included as taxable income, individuals will not be able to claim a tax deduction for these charitable contributions.  This option will be beneficial to those who contribute 50% of their income and want to obtain some benefit for making additional contributions.  This provision will expire at the end of 2007.