New IRS Substantiation Proposal: More Paperwork

The Internal Revenue Service (IRS) has proposed new regulations that would modify its requirements that nonprofits obtain a “contemporaneous written acknowledgement” for contributions of $250 or more.

Under current law, a donor claiming a deduction of $250 or more is required to obtain and keep a contemporaneous written acknowledgment for a charitable contribution. To be “contemporaneous,” the written acknowledgment must generally be obtained by the donor no later than the date the donor files the return for the year the contribution is made (by April 15).

The written acknowledgment must state whether the charity provides any goods or services in consideration for the contribution. If the charity provides goods or services to the donor in exchange for the contribution (a quid pro quo contribution), the written acknowledgment must include a good faith estimate of the value of the goods or services. The charity is not required to record or report this information to the IRS on behalf of a donor. The donor is responsible for requesting and obtaining the written acknowledgement from the charity.

More Paperwork for the Charity

The new proposal would create a new information form that charities would file with the IRS by February 28 each year, as well as provide a copy to each donor who had given $250 or more for their tax return.

Most concerning among the form’s requirements is the mandate for the nonprofit to collect the donor's Social Security number, an action which would impose other legal requirements on nonprofits to retain and protect those Social Security numbers from identify theft. The IRS considers the Form 990 unsuitable for this sort of reporting requirement and concludes that a new form would better protect donor privacy.

The proposed regulations would not be mandatory—should the regulations be approved in their current form, charities would not have to provide this new form. However, it’s clear what the IRS is pushing for: a mandatory version had already been considered and rejected in the past because the proposal raises numerous legal, policy and confidentiality problems.

AFP is currently reaching out to the IRS to get more information and will likely be providing comments, which are due by Dec. 16.

A full copy of the proposal can be found here.