Charitable Contribution Disclosure Requirements: A Guide to Compliance With IRS Rules and Regulations

Virtually every nonprofit in the United States conducts fundraising activities in one way or another. These activities can include in-person solicitations, mail solicitations, phone calls, or special fundraising events. Charitable organizations exempt under section 501(c)(3) must understand the IRS regulations surrounding substantiation and disclosure requirements for charitable contributions in order to protect the tax-deductible nature of the donation as well as protect themselves from IRS penalties.

The tax regulations put the burden of obtaining the proper written acknowledgement of a contribution on the donor, not on the charity itself. An organization that does not acknowledge a contribution (subject to exceptions discussed below) incurs no penalty, but the donor will not be able to claim a tax-deduction. This could lead to unhappy donors who may choose to move their donations to other organizations in the future. It is critical for all charitable organizations to become familiar with and comply with the substantiation requirements to ensure their donors sustain their charitable contribution deductions. Here are some of the main requirements you should consider when acknowledging your donors:

Gifts Less Than $250
In order to claim a tax deduction for any contribution of cash, check, or other monetary gift a donor must maintain a record of the contribution in the form of either a bank record or a written communication from the charity showing the name of the charity, the date of contribution, and the amount of the contribution. While the IRS requirement for a written acknowledgement only applies to contributions of $250 or more, we recommend organizations send acknowledgement letters for all donations. This practice not only keeps you in contact with your donors, but most donors expect to receive acknowledgement of their donation no matter what the amount is.

Gifts of $250 or More
A donor cannot claim a tax deduction for any single contribution of $250 or more unless the donor obtains a contemporaneous, written acknowledgement of the contribution from the recipient organization. Again, an organization that does not acknowledge a contribution of $250 or more does not incur a penalty, but the donor cannot claim the tax deduction without it. The written acknowledgement should contain the following information:

  • Name of the organization
  • Date of donation
  • Amount of cash contribution
  • Description (but not value) of non-cash contributions

The acknowledgement also needs one of the following depending on the circumstances of the donation:

  • Statement that no goods or services were provided by the organization in return for the contribution and that the only benefit to the donor was an intangible benefit, if that was the case, or
  • Description and good faith estimate of the value of goods or services provided in return for the contribution

Deadline for a Contemporaneous Acknowledgement
An organization is required to provide “contemporaneous” acknowledgement for contributions. For the written acknowledgement to be considered “contemporaneous” the donor must receive the acknowledgement by the earlier of: the date on which the donor actually files his or her tax return for the year of the contribution; or the due date (including extensions) of the return. Tax court rulings have denied charitable contributions for the mere fact that the acknowledgement letter was not “contemporaneous”.

Quid Pro Quo Donations
In addition to the requirements for documenting cash contributions, an organization that provides goods or services in exchange for a donation of more than $75 (such as meals and entertainment at a special event), must provide a written disclosure to the donor identifying the fair market value of goods and services received, and inform them that only the portion of the contribution that exceeds this fair market value is tax deductible. A donor may only take a contribution deduction to the extent the contribution exceeds the fair market value of the goods or services the donor receives in return for the contribution. The statement must be in writing and must be presented in a manner that is likely to come to the attention of the donor. A disclosure in small print within a larger document might not meet the requirement. The IRS may impose a penalty on an organization that fails to provide this disclosure. The penalty is $10 per contribution, not to exceed $5,000 per fundraising event or mailing.

Before you conduct your next fundraising activity you should take a movement to review your current policies and procedures to insure your donor acknowledgements comply with IRS regulations. Internal Revenue Service Publication 1771 provides some examples and guidance to help you substantiate the contributions you receive.

IRS Tax-Exempt Organization Newsletter

newsletterThe IRS has a free newsletter that helps nonprofit organizations stay abreast of developments in the tax-exempt world. Readers of “EO Update: e-News for Charities and Nonprofits” receive updates from the IRS about issues of tax policy, services and available information that impact tax-exempt organizations, such as:

  • news releases from the IRS related to exempt organizations;
  • new forms, guidance and other publications;
  • changes and additions to the IRS Charities and Nonprofits Web site; and
  • upcoming IRS training and outreach events

The updates are brief summaries with links to more extended discussions of content available on the irs.gov website.

The link to subscribe is http://www.irs.gov/Charities-&-Non-Profits/Subscribe-to-Exempt-Organization-Update.

What’s Ahead for Nonprofits and the IRS?

irsThe Department of the Treasury has issued its Priority Guidance Plan which contains projects that are priorities for the allocation of resources during the 2012-2013 plan year.

The current plan has 317 projects listed as priorities that will be actively worked on during the year. Of these projects, 13 are specifically focused on exempt organizations. Areas identified include regulations on requirements for community health needs assessments, program related investments, supporting organizations, and new excise taxes on donor advised funds.

The Exempt Organizations division of the IRS has divided its work plan into 4 categories. Under Legislative Implementation, auto-revocation for non-filers and activities related to tax-exempt hospitals are the major topics. Compliance: Using the Form 990 describes a plan to use information from the revised Form 990 to review self-declarers, political activity, UBIT, and governance issues. The Collaborative Efforts topic includes examinations of organizations with international activities, an initiative related to academic institutions, and participation in the National Research Program looking at employment tax matters. Lastly, General Work covers other areas such as colleges and universities, disaster relief communications, private foundations, and mortgage foreclosure assistance activities.

The IRS EO annual report and work plan can be accessed at http://www.irs.gov/file_source/pub/irs-tege/fy2012_eo_work_plan_2011_annrpt.pdf.