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New Proposed IRS Rules for Charitable Contributions

Posted on: November 13th, 2015
charitable deduction rulesThe Internal Revenue Service (IRS) has proposed new rules regarding substantiation of certain claims for charitable contribution deductions. Charitable contributions help to reduce an individual’s taxable income, with properly documented donations made to qualified organizations reported on Schedule A of an individual’s personal income tax return. 

Current tax rules require substantiating donations to qualified charities valued at $250 or more with a contemporaneous written receipt from the recipient charity. The new rules propose eliminating the “written acknowledgement” requirement for charities that report the contribution on information returns filed with the IRS. A charity’s information return would be required to contain the organization name, the donor’s name, address, Taxpayer Identification Number (TIN), and donation amount. If goods or services were provided by the charity in exchange for the donation, this must be disclosed, along with a good faith estimate of the value of the goods or services and a description of any non-monetary contributions the donor made.  In order to satisfy the substantiation requirement and replace the need for a written receipt, the information return would need to be filed by February 28 of the year following the year of contribution, and a copy provided to the donor.

The proposed regulations were developed in response to conflicts that have risen during donor audits in instances where the donor, having provided no valid record evidencing that contributions were made, claimed that the charity should be able to satisfy this requirement via its own tax reporting. The newly proposed rules provide for optional informational reporting by charities; if a charity does not elect to file an informational return, then the donor would still be required to furnish the appropriate documentation to claim the charitable deduction. 

Even if the proposed rules are adopted, donors should still maintain detailed records, receipts, and acknowledgements of donations. Careful review of a tax plan with a tax attorney can help to ensure collection of adequate documentation to substantiate charitable donations and other claimed deductions. Since the potential rules would be optional, charities may opt to maintain their current reporting systems. In this case, or in the event of a data error, a donors’ records can help to clarify conflicts during audits. Donors should verify that the charitable organization is a qualified entity, recognized here in the IRS’ exempt organizations database.

Donors should also be mindful of fraud, particularly by charities that request excessive minimum donation amounts. Donors may contribute any amount they desire to charity and are not legally bound to a minimum amount. Regular reviews are ideal times to address gifting strategies, new tax rules, and the personal values the donor would like to satisfy when making charitable contributions. Our tax attorneys serve North Carolina, Florida, Tennessee, and New York. Individuals in these states can check a charity’s complaint history with official databases in the respective jurisdiction:

As of this writing, the adoption status of these rules has not been determined; comments are due by December 16, 2015.  

By Attorney Samantha Reichle
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