Charitable Substantiation and Acknowledgment Refresher

As we are in the season of year-end giving, we thought it appropriate to offer a reminder regarding charitable contribution substantiation and acknowledgment requirements. The importance of this issue was highlighted earlier this year in a tax court case in which donors were denied a charitable deduction because they did not receive a proper contemporaneous acknowledgment from the recipient organization.

In Durden v. Commissioner, TC Memo 2012-140 (May 17, 2012), a couple claimed a deduction of $25,171 for a contribution made to their church in 2007. Although the church sent a letter of acknowledgment in January 2008, the acknowledgment did not include language indicating whether goods or services were provided in exchange for the contribution. The IRS disallowed the claimed charitable deduction because the acknowledgment lacked this statement. The church issued a subsequent acknowledgment with the appropriate language in 2009, but the IRS did not accept this second acknowledgment because it was not contemporaneous (it was not received by the due date for filing their return). The tax court agreed with the IRS, holding that the couple failed to comply with the substantiation requirements of Section 170(f)(8) of the Internal Revenue Code of 1986, as amended (Code).

Although there is no penalty for organizations failing to provide an acknowledgment, recipient organizations will nonetheless want to assist their donors by providing acknowledgments that comply with IRS requirements. In this regard, organizations often want to honor donors with handwritten thank-you notes and other personal touches, but it is critically important that any such notes are accompanied by more formal written statements containing necessary language.  Pursuant to Code section 170(f)(8)(B) and the corresponding United States Treasury Regulations, a donor may not claim a deduction for any contribution of $250 or more, unless he or she substantiates the contribution by a contemporaneous written acknowledgment that includes the following information:

• The amount of a cash contribution or a description (but not the value) of a non-cash contribution.
• Whether the donee organization provided any goods or services in consideration, in whole or in part, for the contribution.
• If goods or services were provided in consideration for the contribution: (i) a description and good faith estimate of the value of any goods or services; or (ii)  a statement that such goods or services consist solely of intangible religious benefits. ("Intangible religious benefit" means a benefit provided by an organization organized exclusively for religious purposes and which generally is not sold in a commercial transaction outside the donative context.)

The organization can provide a separate acknowledgment for each single contribution of $250 or more or one acknowledgment (e.g., an annual summary of single contributions of $250 or more).   There is no set form for acknowledgments. As such, acknowledgments can be made in the form of a letter, postcard or computer-generated form, and may be transmitted to the donor through paper or electronic means. In order for an acknowledgment to be considered contemporaneous with a contribution, a donor must receive the acknowledgment by the earlier of: (i) the date on which the donor actually files his or her federal income tax return for the year of the contribution; or (ii) the due date (including extensions) of the return. 

More information regarding substantiation and disclosure requirements, including Publication 1771, Charitable Contributions: Substantiation & Disclosure Requirements, can be found on the IRS website.