False Alarm: IRS Ditches Expansion of the $250 Substantiation Documentation Requirement

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The Internal Revenue Code requires that deductible donations to charitable organizations must be substantiated with a contemporaneous written acknowledgment (CWA) of the contribution by the donee organization. The CWA must follow a prescribed format. However, the Code also says that the Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of the CWA requirement.

Normally, one would think that when a contribution of $250 or more was made, the charity would simply provide to the donor a receipt with the appropriate information on it, including the amount of the donation. However, some taxpayers expressed interest in shifting the burden of obtaining and maintaining such documentation to someone else. In fact, a few charities, in response to donor requests, filed amended Forms 990 to include the appropriate CWA information, attempting to allow their audited donors to claim that it was provided contemporaneously.

In addition, the IRS proposed allowing charities to supply such documentation directly to them. In September, 2015, the IRS proposed that such inclusion into a charity’s voluntary specific-use information return filed with the IRS might suffice. Within this filing, donors would be identified, along with their addresses and Social Security numbers. Therefore, the donor would ostensibly have shifted this documentation responsibility to the IRS via the charity.

Unlike a CWA, which is not generally sent to the IRS, the donee reporting information return would be sent to the IRS. The IRS would then have to store, maintain, and readily retrieve this information for specific taxpayers, so that if and when substantiation was required as part of an examination or IRS audit, the IRS would already have it and the donor would not have had to have included it in his or her filing system.

Apparently, the IRS received a number of significant concerns about donee organizations collecting and maintaining taxpayer identification numbers for purposes of the specific-use information returns. In January, 2016, the IRS retracted this proposed regulation.

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