IRS Withdraws Proposed Charitable Contribution Substantiation Regulations
Under the proposed regulations, the IRS would implement an exception to the contemporaneous written acknowledgement (“Acknowledgment”) that is currently required under Internal Revenue Code (“IRC”) §170(f)(8) for a donor to claim a deduction for any contribution of $250 or more. Under this proposed exception, an Acknowledgment would not have been required as long as the donee organization filed a new information form with the IRS by February 28 each year, as well as provide a copy to any donor who had contributed $250 or more.
Current Charitable Contribution Substantiation Regulations
Under IRC §170(f)(8)(A), the IRS states that no charitable contribution deduction equivalent to or greater than $250 can be considered valid without an Acknowledgment obtained from the donee organization. According to IRC §170(f)(8)(B) the Acknowledgment must include the following information:
- The amount of cash and a description (but not the value) of any property other than cash contributed;
- Whether the donee organization provided any goods or services in consideration for the contribution and, if it did, a description and good-faith estimate of the value of the goods or services; and
- If the goods or services consist entirely of intangible religious benefits (e.g., admission to a religious ceremony, but not religious school tuition or fees), a statement to that effect.
In addition, to validate the contribution, the Acknowledgment is considered to be contemporaneous under IRC §170(f)(8)(C) if it is received by the donor on or before the earlier of:
- The date the taxpayer filed the original return for the tax year of the contribution; or
- The due date (including extensions) for filing the original return for the year.
IRS Proposed Regulations and Withdrawal
To rectify the lack of donee reporting procedures, the IRS proposed a new set of regulations that would put into effect an optional donee reporting system. Under these proposed regulations, the IRS would have implemented a new information reporting form to be completed by the donee organization including such information as as the donor’s name, address, and taxpayer identification number (“TIN”).
After receiving numerous public comments from fundraisers, not for-profit organizations, and the Association of Fundraising Professionals, the IRS has made the decision to withdraw the proposed regulations. As an attempt to minimize what was perceived to be a burden for donee organizations, the IRS sent an email in mid-December of 2015 assuring charities and other nonprofit organizations that the proposed regulations would not impose any mandatory changes to allow these organizations to continue to operate as they have been.
Form 990
The IRS has noted that a number of taxpayers while under examination, in order to substantiate claimed charitable contribution deductions, have taken the position that a donee organization’s failure to comply with the Acknowledgment requirement could potentially be rectified by filing an amended Form 990, Return of Organization Exempt From Income Tax. Due to the fact that the IRS has not implemented a form for charitable organizations to utilize in substantiating donations greater than $250, donors are not able to satisfy the Acknowledgment requirement by relying upon a donee organization’s Form 990.
Conclusion
In addition to the concerns raised above, the IRS has also acknowledged that the proposed regulations presented a threat of identity theft as donee organizations would have been required to disclose a donor’s TIN which, in many cases would be an individual donor’s Social Security number. As outlined above, after receiving numerous comments from the concerned public, the IRS has withdrawn the proposed regulations, resulting in a continued lack of exception from the Acknowledgment requirement.
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