Issue

The IRS has become increasingly persnickety about donation receipts – and the verbiage therein.

Situation

Marathon Bible College (MBC) is a private college exempt under Internal Revenue Code section 501(c)(3) and section 170(b)(1)(A)(ii).

A married couple, Charles and Kathy, committed to give $200 a month to MBC.  For the 2016 tax year, their contributions totaled $2,400 and no check was more than $200. MBC is not – technically – required to give the couple any type of receipt if each contribution is less than $250. However, it is a best practice for an institution to provide an annual statement to all donors. Charles and Kathy should keep copies of cancelled checks as their “backup” for any tax deductions.

The IRS and the Tax Court – in several recent rulings – have stipulated that the organization must also include a statement to the effect that the organization does not provide goods or services in whole or partial consideration for any contributions made to the organization (unless goods or services were provided – then refer to the “quid pro quo” receipting rules).

Further, the IRS requires that a donor must have a bank record or written communication from a charity for any monetary contribution before the donor can claim a charitable contribution on his/her federal income tax return.

Rules

From IRS Publication 1771, “Charitable Contributions”:

Requirement

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

It isn’t necessary to include either the donor’s Social Security number or tax identification number on the acknowledgment.

A separate acknowledgment may be provided for each single contribution of $250 or more, or one acknowledgment, such as an annual summary, may be used to substantiate several single contributions of $250 or more. There are no IRS forms for the acknowledgment. Letters, postcards or computer-generated forms with the above information are acceptable. An organization can provide either a paper copy of the acknowledgment to the donor, or an organization can provide the acknowledgment electronically, such as via an email addressed to the donor. A donor shouldn’t attach the acknowledgment to his or her individual income tax return, but must retain it to substantiate the contribution. Separate contributions of less than $250 will not be aggregated. An example of this could be weekly offerings to a donor’s church of less than $250 even though the donor’s annual total contributions are $250 or more.

 

Bottom Line

  • The IRS requires donor receipts for all cash contributions of $250 or more.
  • The contribution receipts should contain the institution’s name, amount of cash contribution, description (but not the value) of any non-cash contribution, and good faith estimate of any goods/services provided.
  • The IRS requires verbiage like “the organization does not provide goods or services in whole or partial consideration for any contributions made to the organization.”
  • Even if each contribution is less than $250, it may be wise for your institution to provide donor receipts.

Specific questions? Email Dave Moja.

The information provided herein presents general information and should not be relied on as accounting, tax, or legal advice when analyzing and resolving a specific tax issue. If you have specific questions regarding a particular fact situation, please consult with competent accounting, tax, and/or legal counsel about the facts and laws that apply.