As taxpayers consider their gifts in 2025, the Internal Revenue Service (IRS) offers seven charitable giving tips. The IRS reminds taxpayers that giving money or goods to a tax-exempt organization before the end of the year can usually be deducted on that year’s federal income tax return. These seven tips may help you maximize benefits from charitable gifts.

1. Qualified Charities – Only gifts to qualified charities are deductible. The Tax Exempt Organization Search (TEOS) Tool on IRS.gov is useful for determining if a charity is qualified. Religious organizations with regular worship services are generally qualified, even though they may not be listed on the IRS database.
2. Itemized Deductions – Charitable gifts are deductible if you itemize on IRS Form 1040 Schedule A. Most taxpayers will itemize if their deductions exceed the standard deduction. Cash gifts up to 60% of your income are generally deductible. If you give over this amount, the excess may be carried forward and deducted over the next five years.
3. Cash, Checks, Credit Cards, Payroll – You need a bank record or written statement from a charity for cash or similar gifts to claim a charitable deduction. For a payroll deduction, you should save your paystub or W-2 statement.
4. Property Gifts – Clothing and household goods must be in good or better condition to qualify for a deduction. If you give clothing or household goods over $500 in value, you may obtain a qualified appraisal and attach it to your return. Gifts of $250 or more in value require a written acknowledgment from the charity with a description of the gifted property. There are special rules for vehicles and other property gifts. Visit IRS.gov for additional details.
5. Donor Benefits – When a donor receives goods or services in return for a contribution, the charitable acknowledgement of the gift must show the value of the benefits transferred. For example, a gift by a donor for the annual charity dinner event will lead to a deduction that is reduced by the value of the dinner.
6. IRA Owners – If you are an IRA owner over age 70½, you may make a gift from your IRA custodian directly to a qualified charity. The maximum 2025 IRA charitable rollover gift (called a qualified charitable distribution (QCD) by the IRS) is $108,000. An IRA charitable rollover gift would also qualify for part or all of your required minimum distribution (RMD). See Pub. 590-B on IRS.gov for more details.
7. Records – You should keep good records of all charitable gifts so that you can prepare your IRS Form 1040. Proper documentation is especially important for property gifts. For example, property gifts valued over $5,000 will require a qualified appraisal so it is vital to maintain adequate records of the appraisal to substantiate the claimed deduction. See IRS.gov for further information.

Treble Damages for False Bargain Sale Appraisal

In American Properties Co. G.P. v. The Welfont Group LLC et al.; No. 2:22-cv-02329, the United States District Court for the Western District of Tennessee issued a default judgment against the Defendants. Plaintiff American Properties, Co. G.P. (APC) brought suit against The Welfont Group, LLC (Welfont), Tax Appraisal Group, LLC (TAG) and Lynda Scull. APC sought treble damages under the Tennessee Consumer Protection Act (TCPA).

In July 2018, APC was offering to sell real property in Memphis, Tennessee (Property). Welfont was interested in the property and made an unconventional offer. The asking price was $3,995,000 and Welfont proposed a Real Estate Purchase Agreement that involved a bargain sale to a charity. Welfont agreed to obtain a qualified appraisal of the Property valuing the Property at approximately $5,388,000, and APC would then sell the Property to a nonprofit for $2,000,000.

Welfont introduced APC to TAG manager, Lynda Scull. Ms. Scull had complete control over TAG finances and policies. TAG provided an appraisal for $5,388,000 and APC sold the Property to a nonprofit for $2,160,000. On its 2019 tax return, APC claimed a $2,595,000 bargain sale charitable deduction. However, the nonprofit immediately sold the property to an alter ego of Welfont for $2,650,000.

The IRS audited APC and determined there was no qualified appraisal, the fair market value was $2,650,000, the charitable deduction was reduced from $2,595,000 to $490,000 and APC owed $571,765 in taxes and penalties.

APC filed suit against Welfont, TAG and Lynda Scull for various causes of action including breach of contract, negligence, fraud, violation of TCPA and civil conspiracy. Welfont, TAG and Scull did not appear in the action and APC sought a default judgment.

The proceeding was delayed because APC was appealing the tax liability. On August 28, 2024, the IRS determined that the underpayment was $1,088,344 and the penalty was $217,669. Therefore, the motion for default judgment was now ripe.

The Court determined that Defendants were in breach of the Purchase Agreement with Welfont and the contract with TAG. In the purchase agreement, Welfont pledged a substantial tax deduction and TAG agreed to issue a qualified appraisal for $5,388,000.

Welfont and TAG were liable for fraud and negligence as well as violations of TCPA. TAG was deemed an alter ego of Scull and therefore the corporate veil was pierced. Finally, Welfont and TAG engaged in a civil conspiracy. The Court noted a prior case which stated, "Once the evidence establishes the existence of a civil conspiracy, the members of the conspiracy are jointly and severally liable for all the damages caused by other conspirators, even if they did not commit tortious or wrong acts themselves."

Based on the Notice of Final Partnership Adjustment, the damages include underpayment, penalties and interest that total $1,751,824. Because the Court determined the deception was willful and knowing, the TCPA treble damages of $5,255,472 were applicable, for a total judgment of $7,007,296. APC also sought attorneys’ fees and the Court deferred action on that motion until additional information was available.

Editor's Note: A bargain sale is an entirely appropriate plan if the appraisal is proper. Under Section 1011, the excess value over the payment by the nonprofit is a qualified deduction. Tax advisors should recognize that the bargain sale requires a qualified appraisal and IRS Form 8283 Noncash Charitable Contributions. A sale of the asset by the nonprofit within three years requires the filing of IRS Form 8282 Donee Information Return (Sale, Exchange or Other Disposition of Donated Property). This transaction clearly failed on multiple grounds. However, a bargain sale is still an excellent plan for a nonprofit to acquire property.

Deduction Denied Due to Failed Substantiation

In John Henry Besaw v. Commissioner; No. 19222-22S; T.C. Summ. Op. 2025-7, the Tax Court reviewed a tax return with a claim for noncash charitable gifts of $6,760. The deduction was denied because the substantiation was improper.

On his 2019 joint federal income tax return, Besaw claimed a deduction of $6,760 for noncash contributions. He included IRS Form 8283 with his return. However, the Form 8283 did not include the dates of the donations or the values of the items. The Internal Revenue Service (IRS) reviewed the return and noted that the taxpayer had submitted additional documents with the title "2019 Reconstructed from Form 8283 and Continuation Sheet.” The supplemental information included the dates of the donations, descriptions of the donated items and the "cost/current value" of the donated items. The IRS issued a Notice of Deficiency of $2,626 and a Section 6662(a) penalty of $525. The IRS explanation for the deficiency stated, "To be allowed a deduction for property as a contribution, you must show (a) the name and address of the qualifying organization(s), (b) provide a list of what was donated, and (c) show the fair market value of each item on the date of contribution. Since you have not met these requirements, we have adjusted the amount as shown."

A taxpayer who claims a charitable deduction is required to meet Section 170 substantiation requirements. Noncash contributions must include a receipt with the name of the donee organization, the date and location of the contribution and a reasonable description of the property. The regulations state, "[a]lthough the fair market value of the property is one of the circumstances to be taken into account in determining the amount of detail to be included on the receipt, such value need not be stated on the receipt." Reg. 1.170A-13(b)(1)(iii).

Gifts with value of $250 or more require a contemporaneous written acknowledgment. Section 170(f)(8). A noncash gift over $500 requires a written record that states the manner of acquisition, the approximate date of acquisition and the cost or adjusted basis of the property.

The taxpayer attached Form 8283 and listed the items with brief descriptions and the names and addresses of the donee organization. However, the receipts to identify the donated goods were blank and the subsequent Reconstructed from Form 8283 and Continuation Sheet were not timely.

The taxpayer indicated that he filled out Form 8283 as he understood the requirements. The Tax Court noted it is likely there were items donated to charity, but the taxpayer "did not satisfy the substantiation requirements of Section 170(a)(1) and Treasury Regulation 1.170A-13.” Because the receipts were not acceptable and the IRS Form 8283 was incomplete, the charitable deductions were denied.

Editor's Note: This case is a good summary of the basic requirements to deduct a gift of noncash property. In addition to the receipt, the taxpayer must complete all applicable sections of IRS Form 8283.

Applicable Federal Rate of 4.8% for September: Rev. Rul. 2025-17; 2025-36 IRB 1 (17 August 2025)

The IRS has announced the Applicable Federal Rate (AFR) for September of 2025. The AFR under Sec. 7520 for the month of September is 4.8%. The rates for August of 4.8% or July of 5.0% also may be used. The highest AFR is beneficial for charitable deductions of remainder interests. The lowest AFR is best for lead trusts and life estate reserved agreements. With a gift annuity, if the annuitant desires greater tax-free payments the lowest AFR is preferable. During 2025, pooled income funds in existence less than three tax years must use a 4.0% deemed rate of return. Charitable gift receipts should state, “No goods or services were provided in exchange for this gift and the nonprofit has exclusive legal control over the gift property.”