Proposed changes were reported in the Federal Register on September 17, 2015, that relate to the substantiation of charitable donations. The rules, if approved, would create an alternative to the current requirement that an organization provide a contemporaneous written acknowledge (CWA) to the donor that contains certain information related to the donation. Organizations could instead provide an information return that includes the CWA information to both the donor and to the IRS.

Background

Donors that take an income tax deduction for donations of $250 or greater are required to obtain substantiation for the deduction. According to Section 170(f)(8)(B) of the Code, substantiation requires the donor to receive a CWA from the organization to which he or she donated that contains the following information:

• The amount of cash or a description of other property contributed;
• Whether goods or services were provided by the donee in exchange for the donation; and
• A description and good faith estimate of the value of goods or services provided by the donee organization

To qualify as contemporaneous, the CWA must be provided to the donor on on or before the time the taxpayer files a tax return for the year in which they made the donation, or the due date, whichever comes first. This timing includes extensions.

An exception exists where a CWA would not be required if the donee organization filed a return in accordance with the regulations that includes the information required to be presented in the CWA. However, the Treasury Department and the IRS have specifically declined to issue regulations to effectuate such reporting. Some taxpayers have argued that Form 990 filed with the IRS by the donee organization would constitute permissible reporting, but the IRS and Treasury Department have concluded that would be unsuitable.

Main Provisions

As a substitute to the CWA, the charitable organization would instead file a specific use information return with the IRS and provide a copy of the return to the donor. The IRS intends to develop this information return prior to the finalization of the proposed regulations. The donor would then use the return to assist in preparing their income tax return. Because the burden of reporting will fall mainly to the charitable organization, organizations can elect whether to use the information return rather than the CWA.

Some differences would exist between the information return and the CWA. For example, the CWA does not currently have to be filed with the IRS. The information return would have to be submitted to the IRS, and the form would contain personally identifiable information, such as the donor’s address and tax identification number. This presents a risk for identify theft.

The proposed regulations would give organizations until February 28 of the year following the year in which the donor made the donation to submit the form to both to the IRS and to the donor. This is consistent with the due date of numerous other information returns. If the information return is not filed timely with the IRS and a copy provided to the donor, it will not meet timely substantiation requirement under Section 170(f)(8.)

Next Steps

The IRS and the Department of Treasury will accept written or electronic comments on the proposed changes through December 16, 2015. Items earmarked for feedback included how the information forms could help protect the donors from identity theft and how the process might be streamlined to minimize the reporting burden on the organizations receiving donations.

If you have specific comments, questions or concerns about the proposed changes and how they would affect your organization, please contact us here.

Copyright © 2015, CBIZ, Inc. All rights reserved. Contents of this publication may not be reproduced without the express written consent of CBIZ. This publication is distributed with the understanding that CBIZ is not rendering legal, accounting or other professional advice. The reader is advised to contact a tax professional prior to taking any action based upon this information. CBIZ assumes no liability whatsoever in connection with the use of this information and assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect the information contained herein.

CBIZ MHM is the brand name for CBIZ MHM, LLC, a national professional services company providing tax, financial advisory and consulting services to individuals, tax-exempt organizations and a wide range of publicly-traded and privately-held companies. CBIZ MHM, LLC is a fully owned subsidiary of CBIZ, Inc. (NYSE: CBZ).