[Federal Register Volume 59, Number 102 (Friday, May 27, 1994)]
[Unknown Section]
[Page 0]
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]
=======================================================================
-----------------------------------------------------------------------
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.
-----------------------------------------------------------------------
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