[Federal Register Volume 59, Number 102 (Friday, May 27, 1994)]
[Unknown Section]
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From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-12829]


[[Page Unknown]]

[Federal Register: May 27, 1994]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Parts 1 and 602

[TD 8544]
RIN 1545-AS28

 

Substantiation Requirement for Certain Contributions

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Temporary regulations.

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SUMMARY: These temporary regulations are being issued to provide 
guidance to the public with respect to the substantiation requirement 
contained in section 170(f)(8) of the Internal Revenue Code. Section 
170(f)(8) was added to the Code by section 13172 of the Omnibus Budget 
Reconciliation Act of 1993. The guidance contained in these regulations 
affects donors of charitable contributions of $250 or more.

EFFECTIVE DATE: January 1, 1994.

FOR FURTHER INFORMATION CONTACT: Joel S. Rutstein, 202-622-4930 (not a 
toll-free call).

SUPPLEMENTARY INFORMATION:

Paperwork Reduction Act

    These regulations are being issued without prior notice and public 
procedure pursuant to the Administrative Procedure Act (5 U.S.C. 553). 
For this reason, the collection of information contained in these 
regulations has been reviewed and, pending receipt and evaluation of 
public comments, approved by the Office of Management and Budget (OMB) 
under control number 1545-1431.
    For further information concerning this collection of information, 
and where to submit comments on this collection of information, the 
accuracy of the estimated burden, and suggestions for reducing this 
burden, please refer to the preamble in the cross-reference notice of 
proposed rulemaking published in the Proposed Rules section of this 
issue of the Federal Register.

Background

    This document contains amendments to the Income Tax Regulations (26 
CFR part 1) relating to the substantiation requirement for the 
deduction of certain charitable contributions under section 170(f)(8) 
of the Internal Revenue Code (Code). Section 170(f)(8) was added by 
section 13172 of the Omnibus Budget Reconciliation Act of 1993.

Need for Temporary Regulations

    The provisions contained in this Treasury decision are needed 
immediately to provide guidance to the public with respect to the 
application of the substantiation requirement of section 170(f)(8). 
Therefore, it is found impracticable and contrary to the public 
interest to issue this Treasury decision with prior notice under 
section 553(b) of title 5 of the United States Code.

Explanation of Provisions

    Section 170 allows a deduction for contributions to or for the use 
of certain specified organizations, including those organized and 
operated exclusively for religious, charitable, scientific, literary, 
or educational purposes.
    To be deductible under section 170 of the Code, a payment to or for 
the use of a qualified organization must be a gift--that is, a payment 
of money or transfer of property without adequate consideration. Rev. 
Rul. 67-246, 1967-2 C.B. 104. Thus, if a taxpayer receives goods or 
services from the organization in consideration for a payment, the 
taxpayer may not deduct as a charitable contribution more than the 
excess of the amount paid over the value of the consideration received 
therefor. Id. The Service has determined, however, that if a taxpayer 
receives only certain inconsequential or insubstantial benefits in 
consideration for a payment to a qualified organization, the taxpayer 
may deduct the entire payment as a charitable contribution. Rev. Proc. 
90-12, 1990-1 C.B. 471. See also Rev. Proc. 92-49, 1992-1 C.B. 987 
(amplifying Rev. Proc. 90-12 by providing that certain free, unordered, 
low-cost items that accompany charitable solicitations are considered 
to have insubstantial value). (See Sec. 601.601(d)(2)(ii) of the 
Statement of Procedural Rules, 26 CFR part 601.)
    Section 170(f)(8) disallows a deduction for any contribution of 
$250 or more that is not substantiated by a written acknowledgment from 
the donee organization. The acknowledgment must provide information 
regarding (a) the money or other property contributed, and (b) any 
goods or services provided by the donee organization in whole or 
partial consideration for the contributed money or other property.
    Section 170(f)(8) is a compliance provision, intended to facilitate 
the enforcement of the substantive requirements for a deduction under 
section 170. The compliance purpose of section 170(f)(8) does not 
require that an acknowledgment refer to goods or services provided by a 
donee organization to a donor if the provision of goods or services 
does not affect the amount that the donor is entitled to deduct as a 
charitable contribution. Therefore, the temporary regulations provide 
that goods or services given in return for a contribution need not be 
taken into account for purposes of section 170(f)(8), if the goods or 
services have insubstantial value under the guidelines provided in Rev. 
Procs. 90-12 and 92-49 (and any successor documents). (See 
Sec. 601.601(d)(2)(ii) of the Statement of Procedural Rules, 26 CFR 
part 601.)
    The legislative history of the 1993 Act states that Congress 
intended a similar exception to apply in connection with the disclosure 
requirement of section 6115. See H. Rep. No. 213, 103d Cong., 1st Sess. 
566 (1993). Although the legislative history does not discuss 
application of such an exception to the substantiation requirement of 
section 170(f)(8), the Service has determined that such an exception is 
equally appropriate.
    Some donee organizations receive contributions through arrangements 
in which employers withhold amounts from the wages of their employees 
in accordance with pledges made by the employees, and pay the withheld 
amounts to the donee organizations. Donee organizations that use these 
arrangements may not know the identity of the contributing employees or 
the amounts contributed by each employee. Therefore, these donee 
organizations may face difficulty in preparing the acknowledgments 
contemplated by section 170(f)(8).
    The statutory language and legislative history of section 170(f)(8) 
suggest that Congress appreciated the difficulties of applying the 
substantiation requirement to contributions made by payroll deduction 
and intended that these difficulties be addressed by regulations. 
Section 170(f)(8)(E) directs the Secretary to ``provide such 
regulations as may be necessary or appropriate'' to carry out the 
purposes of section 170(f)(8), ``including regulations that may provide 
that some or all of the requirements of [that section] do not apply in 
appropriate cases.'' The Conference Report on the 1993 Act expresses 
the conferees' intent that the Secretary exercise his regulatory 
authority ``to clarify the treatment of contributions made through 
payroll deductions.'' H. Rep. No. 213, supra, at 567.
    Accordingly, the temporary regulations also provide special rules 
for contributions made by payroll deduction. The special rules allow 
taxpayers to substantiate contributions made by payroll deduction by a 
combination of two documents: (a) a document furnished by the 
taxpayer's employer that evidences the amount withheld from the 
taxpayer's wages, and (b) a document prepared by the donee organization 
that states that the organization does not provide goods or services as 
whole or partial consideration for any contributions made by payroll 
deduction.
    The special rules for contributions made by payroll deduction, like 
the underlying statutory provisions, do not require that the document 
prepared by the donee organization take any particular form. Similarly, 
although donors must obtain the document in time to meet the 
``contemporaneous'' requirement of the statute (generally, by the time 
they file the relevant tax return), the rules do not require the donee 
organization to prepare the document at any particular time. Therefore, 
if a donee organization includes the statement contemplated by the 
rules on a pledge card prepared to solicit contributions in 1995, a 
donor who receives the card before timely filing the donor's 1994 tax 
return could use the card to substantiate contributions made in 1994. 
Contributions made by payroll deduction during 1994 can thus be 
substantiated under these rules even if the donee organization has used 
pledge cards for 1994 contributions that do not include the statement 
contemplated by the rules. As a result, the Service understands that 
donee organizations will be able to comply with the ``contemporaneous'' 
requirement for 1994 contributions. The Service invites comments, 
however, on whether transitional relief from the ``contemporaneous'' 
requirement is needed for 1994 contributions.
    The temporary regulations also provide that, for purposes of 
applying the $250 threshold provided in section 170(f)(8)(A) to 
contributions made by payroll deduction, the amount withheld from each 
paycheck is treated as a separate contribution. Thus, the 
substantiation requirement of section 170(f)(8) will not apply to 
contributions made by payroll deduction unless the employer deducts 
$250 or more from a single paycheck for the purpose of payment to a 
donee organization. This rule is consistent with the legislative 
history of section 170(f)(8). See H. Rep. No. 213, supra, at 565 n.29 
(``In cases of contributions paid by withholding from wages, the 
deduction from each paycheck will be treated as a separate payment.'').
    Some charitable organizations solicit contributions in the form of 
payroll deductions or lump-sum payments for the purpose of distributing 
the amounts received to other charitable organizations. The temporary 
regulations provide that, in such cases, the distributing organization 
is treated as a donee organization for purposes of the substantiation 
requirement of section 170(f)(8). This rule applies regardless of 
whether the distributing organization distributes the contributed funds 
pursuant to the donor's instructions. The rule does not apply, however, 
if a distributee organization provides goods or services to the donor 
as part of a transaction structured with a view to avoid taking the 
goods or services into account in determining the amount of the 
deduction to which the donor is entitled under section 170.

Special Analyses

    It has been determined that these temporary regulations are not a 
significant regulatory action as defined in Executive Order 12866. It 
has also been determined that section 553(b) of the Administrative 
Procedure Act (5 U.S.C. chapter 5) and the Regulatory Flexibility Act 
(5 U.S.C. chapter 6) do not apply to these regulations, and, therefore, 
an initial Regulatory Flexibility Analysis is not required. Pursuant to 
section 7805(f) of the Internal Revenue Code, these regulations will be 
submitted to the Chief Counsel for Advocacy of the Small Business 
Administration for comment on their impact on small business.

Drafting Information

    The principal author of these regulations is Joel S. Rutstein, 
Office of the Assistant Chief Counsel (Income Tax & Accounting), 
Internal Revenue Service. However, other personnel from the Service and 
Treasury Department participated in their development.

List of Subjects

26 CFR Part 1

    Income taxes, Reporting and recordkeeping requirements.

26 CFR Part 602

    Reporting and recordkeeping requirements.

Adoption of Amendments to the Regulations

    Accordingly, 26 CFR parts 1 and 602, are amended as follows:

PART 1--INCOME TAXES

    Paragraph 1. The authority citation for part 1 is amended by adding 
an entry in numerical order to read as follows:

    Authority: 26 U.S.C. 7805 * * * Sec. 1.170A-13T also issued 
under 26 U.S.C. 170(f)(8)(E).

    Par. 2. Section 1.170A-13T is added to read as follows:


Sec. 1.170A-13T  Substantiation requirement for certain contributions.

    (a) Certain goods or services that have insubstantial value not 
taken into account. Goods or services that have insubstantial value 
under the guidelines provided in Revenue Procedures 90-12, 1990-1 C.B. 
471, and 92-49, 1992-1 C.B. 987, (and any successor documents) need not 
be taken into account for purposes of section 170(f)(8). (See 
Sec. 601.601(d)(2)(ii) of the Statement of Procedural Rules, 26 CFR 
part 601.)
    (b) Contributions made by payroll deduction--(1) Form of 
substantiation. A contribution made by means of withholding from a 
taxpayer's wages and payment by the taxpayer's employer to a donee 
organization may be substantiated, for purposes of section 170(f)(8), 
by--
    (i) A pay stub, Form W-2, or other document furnished by the 
employer that evidences the amount withheld by the employer for the 
purpose of payment to a donee organization, and
    (ii) A pledge card or other document prepared by the donee 
organization that includes a statement that the organization does not 
provide goods or services in whole or partial consideration for any 
contributions made to the organization by payroll deduction.
    (2) Application of $250 threshold. For the purpose of applying the 
$250 threshold provided in section 170(f)(8)(A) to contributions made 
by the means described in paragraph (b)(1) of this section, the amount 
withheld from each payment of wages to a taxpayer is treated as a 
separate contribution.
    (c) Distributing organizations as donees. An organization described 
in section 170(c), or an organization described in 5 CFR 950.105 (a 
Principal Combined Fund Organization for purposes of the Combined 
Federal Campaign) and acting in that capacity, that receives a payment 
made as a contribution is treated as a donee organization solely for 
purposes of section 170(f)(8), even if the organization (pursuant to 
the donor's instructions or otherwise) distributes the amount received 
to one or more organizations described in section 170(c). This 
paragraph (c) does not apply, however, to a case in which the 
distributee organization provides goods or services as part of a 
transaction structured with a view to avoid taking the goods or 
services into account in determining the amount of the deduction to 
which the donor is entitled under section 170.
    (d) Effective date. The rules of this section apply to 
contributions made on or after January 1, 1994.

PART 602--OMB CONTROL NUMBERS UNDER THE PAPERWORK REDUCTION ACT

    Par. 3. The authority for part 602 continues to read:

    Authority: 26 U.S.C. 7805.

    Par. 4. Section 602.101(c) is amended by adding the entry ``1.170A-
13T . . . 1545-1431'' in numerical order to the table.
    Approved: May 6, 1994.
Margaret Milner Richardson,
Commissioner of Internal Revenue.

Leslie Samuels,
Assistant Secretary of the Treasury.
[FR Doc. 94-12829 Filed 5-26-94; 8:45 am]
BILLING CODE 4830-01-U