OUR THOUGHTS ON:

IRS Withdraws Proposed Regulations for Substantiating Charitable Contributions

Not-for-Profit|Tax

By Debra Ries

On November 11, 2015, we posted “our thoughts” on new rules for substantiating charitable contributions proposed by the Internal Revenue Service.   The proposed regulations under Section 170(f)(8)(D) of the Internal Revenue Code (the “Code”) provided an option whereby a charity could file an information return with the IRS containing the information required to substantiate a charitable contribution.  

The purpose of the information return was to relieve a donor from having to obtain a  contemporaneous written acknowledgement (“CWA”) from the donee organization before claiming a tax deduction for the contribution.  The proposed regulations would have required the donee organization to obtain and report the donor’s taxpayer identification number (i.e., social security number) in the information return.   A CWA does not require that a taxpayer’s identification number be included in the acknowledgement.

Background

Section 170(f)(8)(A) of the Code requires a taxpayer who claims a deduction for a charitable contribution of $250 or more to obtain a CWA from the donee organization.   A written acknowledgement qualifies as contemporaneous if the taxpayer obtains it no later than the time the taxpayer files his or her return for the year the contribution was made.  

Section 170(f)(8)(D) of the Code provides an exception to the CWA requirement for contributions of $250 or more if the donee organization files an information return in accordance with regulations prescribed by the IRS.  This exception has been in the Code for many years.  However, in 1997 when the original treasury regulations for this section of the Code were issued, the Treasury Department and IRS specifically declined to issue regulations to effectuate reporting by a donee organization. 

In recent years, taxpayers under IRS audit for claimed charitable deductions have argued that a failure to comply with the CWA requirement could be cured if the donee organization filed an amended Form 990, Return of Organization Exempt from Income Tax, to include the donor’s contribution information.  In response to donors’ requests, some donee organizations filed an amended Form 990 attempting to effectuate donee reporting.  The Treasury Department and the IRS determined that the Form 990 is an unsuitable reporting method for this purpose and may not be used to effectuate donee reporting.

On September 17, 2015, the Treasury Department and IRS issued the proposed regulations under Section 170(f)(8)(D) of the Code in response to interest expressed by some taxpayers.  The Treasury Department and IRS requested comments on the proposed regulations.  The comment period closed on December 16, 2015. 

Withdrawal of Proposed Regulations

On January 8, 2016, the IRS withdrew the proposed regulations after receiving a substantial number of public comments.  Many commentators questioned the need for donee reporting, and many of the comments expressed significant concerns about donee organizations collecting and maintaining taxpayer identification numbers. 

In the notice of withdrawal of the proposed treasury regulations, the Treasury Department and IRS decided against implementing the statutory exception to the CWA requirement.  Accordingly, the exception under Section 170(f)(8)(D) remains unavailable unless and until final regulations are issued prescribing the method for donee reporting.

If you have questions regarding the tax implications and rules for charitable contributions, Schneider Downs can assist.

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