Money May Be Down – But the Rules Don’t Change
By Trudy R. Jacobson
Managing Director Development & Marketing
Maryland Association of Nonprofit Organizations
You might be fighting harder for every dollar you achieve, or perhaps more grateful for every dollar you receive from a supportive donor that maintains their contribution level, but the rules of substantiation haven’t changed. In fact, it is more essential than ever that along with the appropriate thank you, you legally acknowledge all gifts accurately so the contribution the donors wish to take are accepted without challenge by the IRS. While I maintain that the reason that a donor gives is rarely first and foremost for reasons of tax- deductibility, they still want it to be easy to claim their deductions they believe they have coming when it comes time.
In August, 2006, a federal law went into effect that donors are NOT able to claim a deduction for charitable contributions unless the donor has a cancelled check or other bank record, or a receipt from the charity, to substantiate the deduction. However, this new law left in place a 1994 enactment that each separate contribution of $250 or more require written acknowledgements from the charity of the contribution. Of course, they don’t specify any particular form for the receipt – but it seems obvious that the acknowledgement should include the name and address of the donor, and the amount of the donation. We would suggest that the extra step of confirming the form of payment (cash, check, credit card) must also be noted as well as the date the gift was received. Plus, If it is easy for you to note the specific check number or credit card transaction on the acknowledgement/receipt – that is all the better. And, of course please confirm that you are in fact a 501 (c) 3 organization.
But the clues of what the IRS really wants are noted in many places in the language of the requirements.
First and foremost, if no goods or services were received – it really needs to note that on the acknowledgement. And, if no goods or services were received, you should go on to write that the entire amount of the donation is tax-deductible. But, the letter doesn’t (especially during this economic time of reserve and constraint) have to be mailed via first class postage – it can definitely be sent electronically. However, that brings up the second issue. As we look to care for and support our donors, we need to remind them that they MUST retain the letter/receipt in their records for tax purposes. It never hurts to remind our donors that the IRS no longer will accept a canceled check as substantiation of a charitable contribution of $250 or more.
The IRS assumes guilt before innocence, in fact the IRS presumes that the donation is not tax-deductible and requires taxpayers to prove that the amount they paid is either fully deductible or that they have a right to deduct the amount they are claiming based on fair market value of other services paid for or covered by the total dollars paid to the charity.
Contact Trudy at http://www.marylandnonprofits.org/