Gift Acknowledgments – Do You Know Your IRS Requirements?
As another calendar year comes to a close, tax-exempt organizations may engage in a final fundraising push to enhance contribution revenue, and donors may make donations to increase their tax deductions for the year. During this time, exempt organizations may find it valuable to review the requirements surrounding gift acknowledgment, both to assess compliance with tax requirements and to maintain and protect donor relationships.
Written Acknowledgment Requirements
Federal tax law requires that donors adhere to specific substantiation rules to claim a tax deduction for a charitable gift. Donors are required to obtain a written acknowledgment from an exempt organization for any single gift of $250 or more to claim the charitable contribution deduction on their personal federal income tax return. While the responsibility for obtaining acknowledgment of a charitable gift rests with the donor and not the exempt organization, many donors expect organizations to provide acknowledgment, and best practice indicates that an exempt organization can assist donors by providing timely, written acknowledgment of donations.
The written acknowledgment required to substantiate a contribution of $250 or more must contain the following information:
- Charitable organization’s name
- Amount of cash contribution
- Description (but not value) of a noncash contribution
- Statement that no goods or services were provided by the organization in return for the contribution, if that was the case
- Description and good-faith estimate of the value of goods or services the organization provided in return for the contribution, if any
- A statement that goods or services the organization provided in return for the contribution—if any—consisted entirely of intangible religious benefits, if that was the case
A separate acknowledgment letter may be provided for each single contribution of $250 or more, or an organization may provide an annual summary that acknowledges multiple single contributions of $250 or more. The acknowledgment may be provided via paper copy or electronically, such as through email.
The written acknowledgment should be concurrent with the contribution, which requires that donors receive the acknowledgment no later than the date they file their personal income tax return for the year of the contribution. To help ensure that acknowledgment letters are contemporaneously received, exempt organizations typically send acknowledgments to donors by January 31 of the year following the donation.
In addition, organizations that provide goods or services in exchange for a single payment in excess of $75 are required to provide written disclosure to a donor. When a donor makes a contribution and receives goods and services in exchange, it’s considered a quid pro quo contribution. For example, a donor may contribute $100 to an exempt organization and receive an event ticket valued at $50 in exchange. In this example, the deductible portion of the payment is $50.
The required disclosure must provide the donor with a good-faith estimate of the fair market value of the goods or services received and inform the donor that the contribution amount that’s deductible for federal income tax purposes is limited to the excess of the contribution over the value of goods or services provided. If an exempt organization doesn’t make the required disclosures in connection with a quid pro quo contribution of more than $75, it’s subject to a penalty of $10 per contribution, not to exceed $5,000 per fundraising event or mailing.
For noncash contributions of more than $5,000, the donor must complete Form 8283 and the organization that received the property is required to complete and sign a portion of the form. There are additional reporting requirements that apply when an organization receives a donation of a vehicle, boat or plane with a value of more than $500. As the recipient organization, being aware of these requirements can be helpful if a donor isn’t certain which documentation he or she needs to obtain for a specific gift.
An organization that assists its donors in meeting their charitable contribution substantiation requirements is safeguarding relationships with donors, in addition to meeting its own tax reporting obligations. In the current philanthropic environment, each individual donor relationship is significant and worthy of the additional time involved in providing a prompt acknowledgment of the gift.
For more information, reach out to your BKD Trusted Advisor™ or use the Contact Us form below.