'Tis the Season for Giving—Even to Your Local Government
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Just don’t ask for anything specific in return, according to the IRS.
The idea of Giving Tuesday was hatched in 2012 with the aim of getting people to take a break from holiday shopping to donate to charitable organizations. But it also can be a time to donate to municipal governments that provide aid to local communities and their residents.
The first question many potential donors ask is whether it’s OK to deduct donations to government entities from their taxes. The answer, in general, is yes. According to the IRS, “charitable contributions to governmental units are tax-deductible under section 170(c)(1) of the Internal Revenue Code if made for a public purpose.”
In other words, donors can’t receive anything of value in exchange for their donations. And they must keep records of their gifts in order to claim a tax deduction. Municipal governments must record donations of $250 or more.
Accounting firm Baker Tilly warns local governments to be careful about what kind of gifts they accept.
“Local government spending is limited by statutory authority,” wrote the firm’s Jodi Dobson and Susannah Filipovic in 2020. “Be cautious of accepting donations that are not related to programs, activities or projects that the local government is currently participating in. Some donor restrictions may be too burdensome to meet or may steer a current project in a different direction than the governing authority had decided. Local governments should not feel obligated to accept contributions if the restrictions will be too challenging to accommodate.”
Dobson and Filipovic also recommended that expenditures related to donations flow through the local government’s standard approval process.
Law firm Covington also warns givers to be careful about exactly who they donate to. “Government ethics rules often prohibit performing public services for private compensation,” it says. “Before donating employee time to government entities, or offering pay or benefits for government employees, check how these rules work in the relevant jurisdiction.”
Specific regulations regarding the acceptance of charitable gifts vary by state and locality. The Municipal Research and Services Center in Washington state, for example, notes that if a gift to a locality in the state comes with strings attached, “such as when a cash donation is offered for use only at the senior center, the city may accept it only for that purpose, if it agrees with the condition, or otherwise reject it. If there are no conditions attached, the gift may be used for any municipal purpose.”
In North Carolina, cities are allowed to solicit contributions, according to the University of North Carolina School of Government. “A local unit likely has inherent authority to spend public funds to help solicit broader contributions to support its programs and projects. Solicitations can take many forms—from a simple call-to-action by a staff member to a formalized marketing effort.” Under state law, though, any contributions collected must be deposited daily.
For those feeling especially generous toward the governments that serve them at all levels, the federal government accepts donations too. Since 1843, the U.S. Treasury Department says, an account has been set up “to accept gifts, such as bequests, from individuals wishing to express their patriotism to the United States.”
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