As year-end approaches, it is prudent to review the IRS requirements for substantiating donations to charities. For a contribution in excess of $250 to be deductible to the donor, the charity must provide the donor with substantiation in the form of a contemporaneous written acknowledgment. It is good practice for charities to substantiate all contributions. In addition, for contributions in excess of $75 for which the donor received something in return, the value of the goods or services received must be provided to the donor. Please click here to access the IRS guidance on substantiation.
In September 2015, the IRS issued proposed regulations under which the donor’s obligation to substantiate the deduction can be satisfied if the recipient charity elects to file a return with the IRS reporting the contribution. The charity’s return must provide the charity’s name and address, the donor’s name and address, the donor’s taxpayer identification number, the amount of cash, and a description (but not necessarily the value) of any property other than cash contributed, whether the charity provided any goods or services in consideration for the contribution, and a description and good faith estimate of the value of any goods or services provided by the charity. Practitioners speculate that the motivation for this proposal is related to tax enforcement. It is unlikely that most charities will choose to file such returns. However, some taxpayers have used an obscure exception to the substantiation rules to claim that the filing of a 990 that disclosed contributions fulfilled the substantiation condition. If the rules are adopted, the IRS will presumably develop a form that charities can use to report donations to the IRS as a method of substantiation if they so choose.