Filed under: Tax Compliance & Planning

The IRS’s track record of disallowing charitable contributions has been dishearteningly successful over the past several years. The winning issue for the IRS is a technicality usually based upon flawed donor acknowledgment letters. One tactic that some donors have taken to try to preserve their deduction is specific language in the statute that allows for an alternative to the contemporaneous written acknowledgment (CWA) in IRC section 170. The statute says that if the charitable organization files a return with the Service, set forth in the Treasury Regulations, which has the same information required on the CWA, the donor’s deduction shall not be denied. The problem with this defense is that the IRS has never developed an approved return for charities to file.

Normally, the Form 990 would not contain all the required CWA information. So, some donors attempted to have donee charities file amended Forms 990 to satisfy the requirement referenced in the statute. The IRS repeatedly maintained, successfully, that the Form 990 is not an approved return. Further, the IRS asserted the Form 990 is unsuitable for this purpose due to the public nature of the form.

In order to better protect donor privacy, Treasury has issued Proposed Treasury Regulation 1.170A-13((f)(18) under Notice of Proposed Rulemaking on September 17, 2015. The proposed regulation indicates that Treasury will be implementing a new form that will be the substitute CWA form that charities may use in lieu of the CWA. Donee organizations will not be required to use the form but if they do, they must provide a copy to the donor as well as the IRS.

If the organization opts to use the form, it must be provided to the donor and the IRS by February 28 of the year following the year of donation and contain the following information already required in a current CWA:

  • Charity’s name;
  • Donor’s name;
  • Date of contribution;
  • Amount of cash and a description of any property other than cash contributed;
  • A statement as to whether any goods or services were provided by the donee organization in consideration for the contribution; and
  • A description and good faith estimate of the value of any goods and services provided by the donee organization or a statement that such goods and services consist solely of intangible religious benefits.

In addition to these disclosures, the Proposed Regulations add the following disclosures:

  • Donor’s address
  • Donor’s taxpayer identification number

Both of these pieces of information may be problematic for organizations to obtain. The first will be difficult because many donors make contributions on-line and the only address the charity has for the donor is an email address. The second difficulty is individuals are very wary of disclosing their taxpayer identification number in this era of rampant identify theft. It is interesting in light of the IRS’s struggles with this problem, that they would promulgate a Regulation with this additional non-statutory imposed requirement.

Because the traditional CWA is still a perfectly acceptable means of donor acknowledgment, it does not require obtaining additional information from the donor, and it does not impose an additional burden on the charity that this new form clearly will impose, it seems unlikely that many charities will opt to use the new form even if the proposed regulations are adopted and Treasury releases a new form.

© Clark Nuber PS, 2015. All Rights Reserved

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