On September 16, 2015, the Internal Revenue Service (IRS) issued proposed regulations to provide an alternative method for substantiating charitable contribution deductions. In connection with these regulations, the IRS will develop a new specific-use information return that charities would have the option of filing by February 28th of every year. This return would include personal information of the charity’s donors from the prior year, including social security numbers or taxpayer identification numbers. Charities choosing this option must also provide a copy of the information return to the donor by the February 28th deadline, but the information return provided to the donor will contain only the information related to that donor.
In response to negative feedback from hundreds of charitable groups and individuals, the IRS released a statement on December 4, 2015 confirming that this method of substantiating contributions will be optional. In lieu of filing the new form with the IRS, charities can continue to provide donors with a written contemporaneous acknowledgement, as described below.
What You Need to Know
There is a great amount of confusion regarding the proposed regulations introducing the development of the new optional donee information form. Many charitable organizations are under the impression that they will have to file the optional form with the IRS, which includes disclosures of individual donor social security numbers. The IRS is aware of this confusion and is trying to clarify the situation.
Charities can continue to follow the current rules by sending a contemporaneous written acknowledgment (CWA) in the form of personalized substantiation letters to their donors in lieu of filing the to-be-developed form with the IRS. The IRS is accepting public comments on the proposed regulations through December 16, 2015.
Under current law, taxpayers must have a bank record or a written statement from a charity showing the charity’s name and the date and amount of the contribution in order to deduct any cash or check donations on their individual federal income tax returns. For donations of $250 or more, however, donors must obtain a CWA from the charity that includes the following information:
- The donor’s name
- The amount of money or a description of the property contributed
- A statement of whether or not the charity provided any goods or services in exchange for the gift
- If applicable, a description of the goods or services provided and an estimate of their value, or a statement that such goods or services consist solely of intangible religious benefits.
The current law also states that in lieu of obtaining a CWA, a donor may deduct contributions of $250 or more if the donee organization files a return “on such form and in accordance with such regulations as the Secretary may prescribe.” To date, the IRS has not developed a form that serves as an alternative to the CWA. In its December 4 statement, the IRS reports that some donors being audited have argued that a charity’s amended Form 990 satisfies the charitable contribution substantiation requirements. The IRS views an amended Form 990 as unsuitable for these purposes and issued the proposed regulations to consider “appropriate alternatives.”
Proposed Rules for Donor Substantiation
The proposed regulations (if finalized) would allow a charitable organization to forego providing CWA’s to donors who make contributions of $250 or more if the organization files a new information return with the IRS by February 28th substantiating its charitable contributions received in the prior tax year. By the same date, the donee organization would also need to provide the donor with a copy of the information return that contains only the information related to that donor. The form will require that the following information be disclosed:
- Name and address of the charitable organization
- Name and address of the donor
- Social Security or taxpayer identification number of the donor
- The amount of cash and a description of any property other than cash contributed
- Whether any goods and services were provided by the organization in consideration for the contribution
- A description and good faith estimate of the value of any goods and services provided by the organization
For More Information
If you have questions about the proposed regulations, or about deducting or substantiating charitable contributions in general, please contact one of the authors.