For your contributions to be deductible, the group you are contributing to must meet certain requirements. These include:
- Non-Profit – This means that the group must not be set up to financially enrich any individuals. The funds raised by the group must be used for the purposes of the group and not for the private benefit of any person. The best way for a group to demonstrate this requirement is to incorporate as a non-profit corporation in the state it is located. If the group doesn’t want to go through the time and expense of incorporating, it is easy to set up non-profit Articles of Association which accomplish pretty much the same thing, and can still be used to establish bank accounts, leases, etc. in the name of the group. (Contact me if you would like assistance doing this for your group.)
- Religious – The group must be organized for genuine spiritual purposes (“religious” in IRS terminology). Consistent with the U.S. Constitution, there is no doctrinal test – a group cannot be rejected based on what type of belief or religion it represents. Instead, the IRS is looking for the group to conform to the characteristics of a religion, such as:
- a written creed, statement of faith, or summary of beliefs
- some kind of “scripture” or spiritual literature
- a minister, leader, hierarchy, or government
- an established congregation or membership
- regularly scheduled religious services
- an established place of worship
- some form of worship
- a distinct religious history
…among other things. Not all of these tests must necessarily be met, but overall there must be enough evidence that the group has a definite religious character. The best way to meet this requirement is for the group to apply for 501(c)(3) tax-exempt status from the IRS. However, this can be a laborious and expensive process, and must be done correctly.
- Provide Documentation – The last requirement is that the group must provide its donors with documentation to back up their donation. For donations of less than $250, this can be a simple receipt showing the name of the donor, name of the group, date, and amount of the donation. For donations of $250 or more, or for donations if items, the group should provide a letter to the donor on their letterhead containing the same information as the receipt, and indicating that no goods or services were provided in exchange for the donation.
Note that it is the responsibility of the donor to be sure that their group qualifies as a genuine charitable organization in order for the deduction to be valid on their tax return. A group, however, can provide reassurance to its donors that it does qualify if it meets the above requirements.
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