A $64 million charitable contribution was disallowed per the Tax Court case 15 West 17th Street LLC v. Commissioner, 147 T.C. No. 19. Why? Because the donor acknowledgement letter was missing key pieces of information required by the Internal Revenue Service.
Detailed rules for contemporaneous written acknowledgments are contained in Section 170(f)(8) of the Internal Revenue Code and Section 1.170A-13(f) of the Income Tax Regulations. These rules require charitable organizations to provide donors with written acknowledgment of gifts over $250. This written acknowledgment must contain specific references as to whether the gift recipient provided the donor with any goods or services in exchange for the donation, and whether the gift recipient provided anything of value, in exchange for the gift.
The IRS Publication 1771 Charitable Contributions Substantiation and Disclosure Requirements provides the following guidance:
A donor cannot claim a tax deduction for any single contribution of $250 or more unless the donor obtains a contemporaneous, written acknowledgment of the contribution from the recipient organization. An organization that does not acknowledge a contribution incurs no penalty; but, without a written acknowledgment, the donor cannot claim the tax deduction. Although it’s a donor’s responsibility to obtain a written acknowledgment, an organization can assist a donor by providing a timely, written statement containing:
1. the name of organization
2. the amount of cash contribution
3. a description (but not the value) of non-cash contribution
4. a statement that no goods or services were provided by the organization in return for the contribution, if that was the case
5. a description and good faith estimate of the value of goods or services, if any, that an organization provided in return for the contribution
6. a statement that goods or services, if any, that an organization provided in return for the contribution consisted entirely of intangible religious benefits (described later in this publication), if that was the case
Publication 1771 is an excellent guide for Organizations and Donors regarding compliance with the Internal Revenue Code. A link to the publication is provided below. We have also provided a link to the Tax Court case referenced earlier in this article.
If you have any questions about disclosure requirements or best practices regarding donor acknowledgment letters please contact the experts at Support Kansas City.