Industry Insights

IRS Withdraws Proposed Regulations on Charitable Contribution Substantiation

January 2016
Author:  Michelle Yu

Michelle Yu

Manager

Tax

Health Care
Not-for-Profit & Government

111 S. Tejon Street, Suite 800
Colorado Springs, CO 80903-2286

Colorado Springs
719.471.4290

On January 7, 2016, due to public comments and concerns, the IRS withdrew proposed regulations that would have offered donee organizations an optional method to substantiate charitable contributions.

Existing Regulations

Under existing regulations, a donor is able to deduct charitable contributions of $250 or more as long as the donor can substantiate the contribution with a written acknowledgment. Written acknowledgments received from the charitable organization must include all of the following information:

  1. Organization name
  2. Dollar amount of cash contribution
  3. Description (but not value) of noncash contributions
  4. Statement that no goods or services were provided by the charitable organization, or if goods or services were provided, a statement with the description and a good-faith estimate of the value of goods or services provided
  5. Statement noting any goods or services the charitable organization provided in return for contributions consisting entirely of intangible religious benefits

Obtaining written acknowledgments is the donor’s responsibility. Donors must obtain written acknowledgments by the earlier of the date they file their original income tax return for the year the contribution is made or by the due date (including extensions) for filing the original return.

Currently, donee organizations have no requirement to report this information to the IRS on behalf of a donor.

Proposed Changes

Under the proposed regulations, the IRS implemented an optional donee reporting requirement that would relieve donors of their requirement to obtain written acknowledgment on charitable contributions of $250 or more. Donee organizations would complete an information reporting form, including all of the information required on a traditional written acknowledgment, as well as the donor’s name, address and taxpayer identification number (TIN). This would allow the IRS to easily store and access the information on specific taxpayers if charitable contribution substantiation is needed during an examination.

Donee organizations would be required to file the information return to the IRS by February 28 of the year following the calendar year in which the contribution is made, and copies of the return would have to be provided to the donor on the same date to be considered timely filed. Note that there are no extended due dates for the donee information returns. If they aren’t filed timely (including the copy provided to the donor), the substantiation requirements would be considered unmet, and the donor would be required to obtain written acknowledgment for the contribution.  

Due to the recent increase in identity theft, donee organizations had major concerns about collecting and storing sensitive, donor-specific information that could potentially create an identity theft risk. The IRS clarified in a December 2015 email statement that the proposed regulations are strictly optional and charitable organizations may continue following the current procedures. No donee reporting method would be available until final regulations are issued.

Due to the number of public comments and concerns—specifically on TIN collection—the Treasury Department and IRS withdrew the proposed regulations and have decided against implementing the optional donee reporting method for charitable contribution substantiation.  

If you’d like more information on this issue or others affecting not-for-profit organizations, contact your BKD advisor.

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