Many taxpayers have questions about how they qualify for the charitable contributions deduction that is available to all taxpayers who itemize their deductions on their tax return.1 One of the important requirements related to qualifying for this deduction is that the recipient of your charitable contribution (or donation) must be qualified to receive the contribution in accordance with tax law.2
A lot of taxpayers have misconceptions about who they can make donations to because they often think that you can make a deductible donation to any organization that is non-profit or tax-exempt. This is indeed a misconception: not all non-profit organizations, even those that are “501(c)(3) organizations”, are qualified to receive charitable contributions.
Another common misconception among taxpayers is that you can deduct making a charitable donation to individuals, such as a beggar on the street, or a local high school student holding a fundraiser to help cover the cost of attending college. In truth, taxpayers making either of these types of donations may not take a deduction for their donations. A taxpayer may only deduct a donation that is made to a qualified organization.
What Types of Organizations are Qualified to Receive Deductible Donations?
So how do we know what organizations we can make deductible contributions to? To start with, here’s a simple list of qualified recipient organizations:3
- Certain governments in the United States or its territories
- Non-profit organizations organized exclusively for religious, charitable, scientific, literary, or educational purposes, or for the purpose of preventing cruelty to children or animals, or to foster international amateur sports competition.”
- War veterans posts, organizations, trusts, and foundations
- Fraternal societies, orders and associations (in certain circumstances)
- Cemetery companies
Each of the above categories of organizations have separate rules that apply. We’ll discuss each of them below.
Basically, the rule here is that the recipient government must be part of the U.S. federal government, a state government, or a government of a U.S. possession. However, the organization can also be a “political subdivision” of any one of those.4 In all cases, the donation must be made for “exclusively public purposes.”
A few easy examples of organizations that can receive deductible contributions are the U.S. National Park Service (part of the U.S. federal government), the Federal Emergency Management Agency (“FEMA”), or even the Internal Revenue Service. So long as it’s part of the federal government, a state government, or a U.S. possession’s government (such as Puerto Rico or American Samoa), it counts!
But what does “political subdivision” mean? This basically means any smaller subset of a federal or state or possession government. In this context, this mostly means county and city government-like organizations. A good example of this would be a city’s parks and recreation department or a volunteer fire department company.5 On the other hand, organizations like a chamber of commerce or homeowners’ associations are not qualified to receive deductible donations.6
Now, remember that all donations to these organizations must also be exclusively for public purposes. Using the parks and recreation department example, if you make a donation of funds to the department that will be used to help clean up some city parks and trails, you could take a deduction for the contribution. In contrast, you would not be able to deduct money paid to your city council to help fund its members’ re-election campaigns (because election and re-election campaigns would not be considered “exclusively public purposes”).
Non-Profit Private Organizations
Private corporations or other types of organizations are qualified to receive deductible charitable contributions so long as they’re organized and operated exclusively for religion, charity, science, literacy, education, preventing cruelty to children or animals, or fostering “international amateur sports competition,”7 and so long as they meet the following two criteria:8 1. They’re organized in the United States or one of its possessions
2. They are non-profit organizations qualified for tax exemption under IRC §501(c)(3)9 The rule that the organization be domestic to the United States is an important one. One example of where contributions were not considered deductible came from where a taxpayer donated to a branch of the First Church of Christ, Scientist, Berne (Switzerland) that was located in Boston, Massachusetts. Even though the church that the taxpayer donated to was located in the United States, the parent organization of the church was incorporated in Switzerland.10
War Veterans’ Posts
The rules for war veterans’ posts are similar to non-profit private organizations – they must be domestic to the United States and must be non-profit organizations.11
There are two main rules about being able to deduct contributions to fraternal societies—one relates to how the fraternal society functions, the other is how the donated funds are used. The first rule is that the fraternal society must be one that is organized under the “lodge system.” This basically means that the fraternal society is organized with a parent organization comprising of chartered local branches that are governing (called “lodges, chapters, or the like”).12 Some examples of Fraternal Societies include the Freemasons, Knights of Pythias, or Odd Fellows and Rebekah lodges.
The second rule is that the funds donated to these types of organizations must only be used for religious, charitable, scientific, literary, or educational purposes, or to help prevent cruelty to children or animals. Contributions to a fraternal society to help support the general operations of the fraternal society or to improve or maintain the lodge, etc. are not deductible contributions.13 In most cases, fraternal societies will maintain separate financial accounts for charitable contributions to ensure that such funds are not used for the exclusive purposes they’re intended for.
This category of organizations includes any organization that is non-profit and that operates “exclusively for the purpose of benefiting the members of the cemetery.”14 This may include organizations that provide burial or cremation services.
If these rules have you worried about making donations to anyone, just remember that, in most cases, these exempt organizations receive official determinations from the IRS regarding whether their organization qualifies to receive deductible charitable contributions from taxpayers. Before you make a donation to an organization, you can always ask the organization whether your donation will be tax deductible, and they’ll be able to let you know.
- The charitable contributions deduction is authorized in tax law in Section 170 of the Internal Revenue Code. 26 U.S.C. §170.
- In order to be a qualified recipient to receive charitable contributions, the organization must meet the requirements in Section 170(c). 26 U.S.C. §170(c).
- See 26 U.S.C. §170(c)(1)-(5).
- 26 U.S.C. §170(c)(1).
- See IRS Rev. Rul. 74-361, 1974-2 C.B. 159, http://www.irs.gov/pub/irs-tege/rr74-361.pdf.
- IRS Priv. Ltr. Rul. 5704295020A (Apr. 29, 1957); I.R.S. Pub. 526, Charitable Contributions, pg. 6, http://www.irs.gov/pub/irs-pdf/p526.pdf
- 26 U.S.C. §170(c)(2)(B).
- 26 U.S.C. §170(c)(2).
- The way that Section 170(c)(2) structures the rule, it states that the organization may not be one that disqualifies itself by “attempting to influence legislation” or participating in the campaign of a political candidate. This isn’t as strict as it sounds—so long as the organization wouldn’t be considered an “action organization,” they’re not disqualified under this rule. Action organizations are defined as an organization where a “substantial part” of its activities involve influencing legislation or participating in a political candidate’s campaign. This doesn’t prevent the organization from “molding public opinion or creating public sentiment to an acceptance” of the views of the organization. See Treas. Reg. §1.501(c)(3)-1(c)-(d).
- Welti v. C.I.R., 1 T.C. 905 (1943), http://www.leagle.com/decision/19439061dttc905_1783.xml/WELTI%20v.%20COMMISSIONER.
- 26 U.S.C. §170(c)(3).
- IRS Rev. Rul. 55-495, 1955-2 C.B. 259, http://www.irs.gov/pub/irs-tege/rr55-495.pdf.
- Rev. Rul. 56-329, 1956-2 C.B. 125.
- 26 U.S.C. §170(c)(5)