The IRS has issued proposed regulations that introduce a new optional form for charitable organizations to provide to donors to substantiate most charitable contributions.
Since 1994, taxpayers making charitable contributions in excess of $250 have been required to obtain written acknowledgment of contributions from the donee organization. The acknowledgment must be contemporaneous, meaning it generally must be obtained by the earlier of the date the taxpayer’s tax return is filed or is due (including extensions).There currently is no particular form for the acknowledgment, but it must contain the following information:
- The amount of cash contributed
- A description of any property other than cash contributed
- Whether any goods or services were provided by the donee organization in consideration for the contribution
- 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
The IRS has applied these rules strictly, leading to unfortunate results for taxpayers who fail to properly substantiate charitable contributions. For example, in a U.S. Tax Court memorandum decision from 2012, a taxpayer was denied a charitable contribution even though a timely receipt was obtained for the contributions in excess of $250 because the receipt did not affirmatively state whether any goods or services were provided to the donor.
In the preamble to the proposed regulations, the IRS notes that some taxpayers have argued that a donation can be considered properly documented if the charitable organization issues an amended Form 990, “Return of Organization Exempt From Income Tax,” including the taxpayer’s contribution. However, the IRS consistently has disallowed this approach because it had not previously established a mechanism for charitable organizations to report donor information to the IRS. The proposed regulations continue to disallow this approach.
The proposed regulations do reflect, however, the IRS’ intent to develop an optional form that charitable organizations can use to report donor information to the IRS in lieu of providing cotemporaneous written acknowledgment to the donors. The form would be similar in nature to other information-reporting forms and would be due to donors by Feb. 28 of the year following the contribution. The regulations will apply to contributions made after the date the regulations are finalized.
Unfortunately, the regulations provide no benefit to taxpayers currently working through issues related to improper documentation. Taxpayers should take care to ensure they retain proper documentation for all claimed charitable contributions and request corrected documentation as necessary.