by Karen Atchley, CPA
Partner at Atchley & Associates, LLP
The Disaster Tax Relief and Airport and Airway Extension Act of 2017 was signed into law on September 28, 2017 (hereafter referred to as The Disaster Tax Relief Act). The legislation provides tax relief to the victims of Hurricanes Harvey, Irma and Maria and funds the Federal Aviation Administration through March 2018.
Although this new law affects individuals and employers, the purpose of this paper is to advise tax exempt organizations concerning one specific area of the new law relating to issuance of charitable contribution acknowledgement letters. The law added a temporary suspension of the adjusted gross income (AGI) limitations that are imposed on qualified charitable contributions. The taxpayer must make an election for the temporary suspension of the AGI limitations to apply.
In general, the law prior to the September 28, 2017 legislation provides that individual’s cash contributions are deductible in any one year up to 50% of AGI and noncash contributions are deductible in any one year up to either 20% or 30% of AGI. Contributions limited by AGI are carried forward to subsequent years for up to five years.
A qualified charitable contribution under the new law is a contribution that was paid during the period beginning August 23, 2017 and ending on December 31, 2017, in cash to an organization described in section 170(b)(1)(A), for relief efforts in the Hurricane Harvey, Irma, or Maria disaster areas. The contribution must be substantiated with a contemporaneous written acknowledgement from the charitable organization that states that the contribution was or is to be used for relief efforts.
Most charitable organizations are aware of Internal Revenue Code (IRC) Section 170(f)(8)(A), which requires that the organization must provide the donor with a written acknowledgement of the donor contribution if the contribution was for $250 or more. IRC Section 6115 requires the charitable organization to provide the donor with a written statement if a contribution is made for $75 or more if part of the contribution is for goods or services (quid pro quo) and the statement must contain a good-faith estimate of the value of goods and services that the charity has provided to the donor. What charitable organizations may not know is that The Disaster Tax Relief Act requires written acknowledgement that not only states that the contribution was or is to be used for relief efforts but also requires a letter to the donor regardless of the size of the contribution.
In summary, charitable organizations that collected funds that were collected during 2017 and used in the relief efforts in the Hurricane Harvey, Irma or Maria disaster areas will want to start working on their acknowledgement letters for 2017 early in 2018 since all qualified relief contributions require an acknowledgement letter.
Note: Regulations may subsequently be issued that affect this provision of the tax law. Check with your tax advisor to determine whether any subsequent tax law changes are made. This paper is not intended to address all the provisions of The Disaster Relief Act but only the provision relating to the issuance of written acknowledgements.