Are you certain your organization is providing the required acknowledgment to your donors to ensure they are getting tax deductions for the charitable contributions they make? On its face, this may seem a trivial question. However, it has become an increasingly significant question to ask yourself. As important and critical as it is to partner with donors for generating the necessary funds to accomplish your organization’s purposes, it is equally important to safeguard your donors from having charitable deductions denied upon IRS examination.
Lately, in our practice, we have seen a number of donation receipts provided to our clients that do not satisfy the substantiation rules for a deductible charitable contribution. This has been true of receipts we’ve seen from both large and small charities. Due to developments in case law, this has prompted us to advise our clients to request second receipts that meet the substantiation requirements.
The importance of providing your donors receipts that will lead to a deduction can be illustrated by quickly reviewing two recent court cases. In Villareale v. Commissioner,
the Tax Court concluded a taxpayer was not entitled to a charitable deduction for $7,600 because the taxpayer did not have contemporaneous receipts indicating that no goods or services were provided in consideration for the donations. This was in spite of the fact she had provided bank statements clearly showing the donations were made. In David P. Durden v. Commissioner, the Tax Court again determined that a taxpayer was not entitled to a charitable deduction totaling $22,517. The issue? He hadn’t received a receipt by the time he filed his return (i.e., it was not contemporaneous) and the receipt did not include a statement that no goods or services were received by Mr. Durden. As in the previous case, this result was reached despite the fact that Mr. Durden provided copies of canceled checks for his donations.
These cases make it clear that, while donors need to exercise due diligence when examining donation receipts, you can greatly assist them by being proactive and making
sure each cash donation of $250 or more is acknowledged, and by keeping the following in mind:
- Donors need a timely receipt. This means a receipt is needed by the time the donor’s tax return is due or is filed. This could be as late as October 15 in some situations, but we recommend making it a policy to have all acknowledgements issued to donors by January 31 of the year following the gift.
- The receipt needs to state the amount and date of the gift
- The receipt needs to show the name of the charity
- The receipt should show the donors name (but social security number or tax ID number is not required)
- The receipt needs to include a statement that no goods or services were provided by the charity in return for the donation (if that is indeed the case)
- If goods or services are provided, the receipt should provide a description and good faith estimate of the value of such goods or services
- If the charity provides only intangible religious benefits to the donor that should also be stated on the receipt
To learn more, contact a Boulay advisor at 952-893-93320 or learnmore@BoulayGroup.com.
File Download: Are Your Donors Getting a Deduction for That Contribution?