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IRS Withdraws Changes to Gift Acknowledgment Rules

Jul 6, 2016

The IRS withdrew these proposed changes to gift acknowledgment rules on January 7, 2016 due to widespread opposition from the nonprofit community and charity regulators.

Currently, nonprofits must provide a Contemporaneous Written Acknowledgment (CWA) when receiving contributions of $250 or more. The acknowledgment must describe the amount of cash or property contributed, any goods and services provided by the nonprofit as consideration and a good faith estimate of the value of the goods and services (or the intangible religious benefits) provided by the nonprofit. The acknowledgment must be "contemporaneous"- i.e.  provided to the donor by the earlier of the date that taxpayer files a return for that year or the due date of the return (including extensions). 

If a nonprofit does not provide a CWA, federal regulations allow nonprofits to acknowledge gifts by filing a specific form with the IRS. To date, the IRS has not created this form and deems use of an amended Form 990 unsuitable for this purpose.  Proposed IRS regulations would create a voluntary form to acknowledge these contributions. The return is due by February 28 for the tax year of the contribution. A copy of the form must be provided to each donor who gives $250 or more for the donor’s tax filings. The new information return would also require the nonprofit to collect information from the donor including the donor’s Taxpayer Identification Number or Social Security Number (SSN).

Our Thoughts

Filing this additional IRS form would be burdensome for nonprofits of all sizes. This would substantially increase reporting requirements for small nonprofits (particularly Form 990-N filers) and it would be time consuming for large nonprofits to follow up with dozens or hundreds of donors.

Donors are reluctant to provide taxpayer information to nonprofits. When certain Colorado laws required nonprofits to collect donors' full SSNs for tax reporting, some donors refused to give. A single data breach could not only risk donor privacy but also undermine confidence in a nonprofit.

Although the IRS proposes a voluntary process, it could become expected or required. Previously, the IRS proposed a mandatory process but a Government Accountability Office report concluded this may not be effective for improving tax compliance. Use of this voluntary form could create an expectation that nonprofits, rather than donors, are primarily responsible for documenting contributions accurately for donors' tax returns.

The CWA process works well for donors and nonprofits. We don't see much need for an alternative.

Our comments on the regulations.

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