Many of your donors are now in the process of preparing their 2014 tax returns. You may also have just completed or are still preparing acknowledgement letters thanking them for their 2014 contributions. We know you are aware of the need for such letters. You may not, however, be aware of the dire consequences that may be in store for your donors if the letters aren’t received timely or are not written in accordance with stringent IRS guidelines.
A recent tax court case highlighted the need for timely and properly worded acknowledgements. In this case, the IRS disallowed a donor’s deduction because the charity’s acknowledgment letter did not contain the necessary wording. The donor then obtained a properly worded letter from the charity, however the IRS disallowed the deduction because it was received after the donor filed his return and the court upheld this decision.
In the spirit of keeping your donors happy, let’s review the rules. The tax laws provide that “No deduction shall be allowed for any contribution of $250 or more unless the taxpayer substantiates the contribution by a contemporaneous written acknowledgment of the contribution by the donee organization.”
The rules explain that an acknowledgment shall be considered contemporaneous if the donor obtains the acknowledgment on or before the earlier of (1) the filing date of the donor’s tax return, or (2) the due date (including extensions) of filing the return.
The rules further explain that the acknowledgment letter must contain the following information:
- The amount of cash and a description (but not value) of any non-cash property contributed;
- Whether the donee organization provided any goods or services in consideration for the donation;
- A description and good faith estimate of the value of any goods or services that the organization provided, or if such goods or services consist solely of intangible religious benefits, if that was the case.
In the tax court case mentioned above the charity failed to include the simple phrase “No goods or services were provided in exchange for your contribution.” This case emphasizes the importance that your acknowledgments include the necessary information and are timely sent to donors. It is not sufficient to simply say “Please consult your tax advisor to determine the deductibility of your donation.”
Remember, a happy donor is more likely to be a generous donor.
If you have any questions about your acknowledgment letters please contact Warady & Davis LLP at 847-267-9600.
Legal Notice: The materials communicated in this transmission are for informational purposes only and not for the purpose of providing accounting, legal or investment advice. You should contact your accountant or advisor to obtain advice with respect to any particular issue or problem. Use of and access to this Web site or any of the e-mail links contained within the site do not create an accountant-client relationship between Warady & Davis and the user or browser. You should not act upon any such information without first seeking qualified professional counsel on your specific matter. Any accounting, business or tax advice contained in this communication is not a substitute for a formal opinion, nor is it sufficient to avoid tax-related penalties. If desired, Warady & Davis would be pleased to perform the requisite research and provide you with a detailed written analysis. Such an engagement may be the subject of a separate engagement letter that would define the scope and limits of the desired consultation services. ©2015