Indian Ocean Tsunami Relief

Congress just passed and the President signed a new law regarding cash contributions made to help with the Indian Ocean tsunami relief efforts. The law provides that if a cash contribution is made in January 2005 for relief of victims in areas affected by the tsunami, such contribution may be treated as made on December 31, 2004 . This special rule does not apply to contributions of marketable securities nor other property.   Only qualifying cash contributions can be taken as a charitable contribution deduction on an individual’s 2004 tax return. However, the law does not require that person to take the contribution on his or her 2004 return and he/she can apply it towards his/her 2005 tax year.  However, the donor can only take the deduction in one year or the other.  Donors are not permitted under the Act to allocate a portion of a contribution to more than one taxable year. Thus, donors are required to treat the entire contribution as made in January 2005 or as made on December 31, 2004 . A taxpayer who makes multiple contributions may treat each contribution separately. For example, a taxpayer making three separate gifts of $100 each may treat two gifts as made on December 31, 2004, and one gift as made on the actual date of gift (in January 2005).

Please also note that such contribution must still be a qualifying charitable contribution that must meet certain statutory requirements, such as documentation.  However, the IRS has not specifically said how charities should report these contributions except that “Donors may want to notate in the memo field of checks they send that it is a contribution to help tsunami victims”.  Our recommendations to charitable organizations is that special contributions in January 2005 taken to help with the Indian Ocean tsunami relief efforts be marked as such in the organization’s 2005 contribution records.  Charitable organizations may want to provide a separate contribution letter for these contributions exceeding $250 and attach the following IRS announcement to their contributors:

IR-2005-6, Jan. 10, 2005

WASHINGTON — The Internal Revenue Service alerted taxpayers who itemize deductions that they may claim on their 2004 tax returns charitable donations made during Jan. 2005 for relief of the victims of the Indian Ocean Tsunami.

The new law enacted on Jan. 7 allows these donations to be deducted as if they were made on Dec. 31, 2004 .

“There are no extra forms to fill out or any additional burdens for taxpayers,” said IRS Commissioner Mark W. Everson. “As long as you send your check by the end of the month, the donation will be treated just like it was still 2004.”

The new law only allows for cash contributions. The contributions must be made specifically for the relief of victims in areas affected by the Dec. 26, 2004 , tsunami in the Indian Ocean . The new law gives taxpayers the option of deducting the contributions on either their 2004 or 2005 returns, but not both.

The IRS advises taxpayers to be sure their contributions go to qualified charities. Taxpayers who have a specific charity in mind can make sure that it is a qualified charity by doing a search on IRS.gov. Some organizations, such as churches or governments, may be qualified even though they are not listed on IRS.gov. Donors can find out more about organizations helping the victims of the tsunami from agencies such as USAID and USA Freedom Corp.

The IRS reminds donors that contributions to foreign organizations generally are not deductible.

IRS Publication 526, Charitable Contributions, provides information on making contributions to charities. Publication 3833, Disaster Relief: Providing Assistance through Charitable Organizations, explains how the public can use charitable organizations to help victims of disasters, and how new organizations can obtain tax-exempt status. Both publications are available on IRS.gov.

When donors make contributions to assist the victims of the tsunami, they should notate in their records to that effect. Donors may want to notate the memo field of checks they send that it is a contribution to help tsunami victims.