The IRS issued proposed regulations on September 17, 2015, that would implement an exception to the “contemporaneous written acknowledgement” requirement for substantiating charitable contribution deductions of $250 or more. Why it’s important: because currently, to take the tax deduction for their charitable contribution, taxpayers need documentation, which recipient organizations now provide via written acknowledgment.
Let’s take a look at the specifics of the proposed regulations and what they might mean for donors and donee organizations.
The proposed regulations would provide another option to meet the substantiation requirements and rules on the time and manner in which donee organizations file information returns to report contributions received from donors during the calendar year. Donors would retain this information return to complete their respective income tax returns. This new reporting would be in lieu of written acknowledgement and completed by the donee organization.
To this end, the IRS is planning on developing an information return specifically to report contributions from donees—think of it as a new version of Form 1099. If an organization chooses to use this method, it would file the charitable information return with the IRS and provide a copy to the donor.
Written Acknowledgment Today
Currently, a taxpayer is allowed a tax deduction for a charitable contribution in excess of $250 made to an exempt organization. However, the taxpayer must substantiate such a contribution with a contemporaneous written acknowledgement of the contribution by the donee organization. Under existing tax law, the donee must provide the following information in the acknowledgement to the donor (which isn’t sent to the IRS):
- The amount of cash and a description of any property contributed other than cash
- A statement as to whether any goods and services were provided by the donee organization in consideration for the contribution
- A description and good-faith estimate of the value of any goods and services provided by the organization (or a statement that such goods and services consist solely of intangible religious benefits)
Under IRC Section 170(f)(8)(C), a written acknowledgement is contemporaneous if it’s obtained by the taxpayer on or before whichever is earlier:
- The date the taxpayer files his or her original return
- The due date of the taxpayer’s return (including any extension)
Written acknowledgement received after the due date of the taxpayer’s return isn’t considered contemporaneous, and as a result, the taxpayer’s charitable contribution deduction would be denied.
IRC Section 170(f)(8)(D) provides for an exception to the contemporaneous written acknowledgement requirement: the donee organization may file a return—in form and accordance with IRS regulations— that includes the information described above. However, until now, the IRS hasn’t provided for this type of donee reporting, and it has declined to issue regulations on this matter.
In recent years, some taxpayers under examination have tried to call on this exception by using a donee organization’s Form 990 to substantiate their claim of a charitable contribution deduction in the absence of written acknowledgment. The IRS, however, has taken the position that the Form 990 isn’t intended to be relied upon for this exception. Instead, the new regulations propose a specific-use information return for donee reporting.
This new form would include information such as the donor’s name, address, and taxpayer identification number, and it would be filed with the IRS by February 28 of the year following that in which the contribution is made. The donee organization would be required to provide a copy of this form to the donor within that same time frame.
For charitable organizations with a stake in the new proposed regulations, the question becomes one of which is easier: providing written acknowledgement or filing the new 1099 for donor contributions. Today, the IRS doesn’t get a copy of the written acknowledgment provided to the donor. And for their part, donors might like receiving a charitable contribution Form 1099 by February of the following year, which coincides with other tax documentation they receive. It’s hard to say which is easier for many organizations—but either way, the good news is that proposed rules provide another option.
To learn more about written acknowledgement provided to donors or the proposed regulations, contact your Moss Adams professional.