United States

Proposed regulations related to charitable contribution information returns

TAX ALERT  | 

On Sept. 17, 2015, proposed regulations were posted to the Federal Register for public comment related to new substantiation requirements for charitable tax-exempt organizations.

The proposed regulations implement an exception to the "contemporaneous written acknowledgement" requirement for substantiating charitable contribution deductions of $250 or more. The proposed regulations provide rules concerning the time and manner for donee organizations (charitable organizations) to file information returns that report the required information about contributions (donee reporting). Public comments period is open until Dec. 16, 2015.

Background
The proposed regulations contain amendments to the income tax regulations under Code section 170(f)(8) governing the substantiation of charitable contributions of $250 or more. Furthermore,  Reg. section 1.170A-13(f) provides rules on substantiation of charitable contributions of $250 or more.

Section 170(f)(8)(A) requires a taxpayer who claims a charitable contribution deduction for any contribution of $250 or more to obtain substantiation in the form of a contemporaneous written acknowledgment (CWA) from the donee organization. Under section 170(f)(8)(B), while the CWA need not be in any particular form, it must contain the following information:

  • The amount of cash and a description of any property other than cash contributed
  • Whether any goods and services were provided by the donee organization in consideration for the contribution
  • A description and good faith estimate of the value of any goods and services provided by the donee organization or a statement that such goods and services consist solely of intangible religious benefits

Under section 170(f)(8)(C) and Reg. section 1.170A-13(f)(3), a CWA is contemporaneous if it is obtained by the taxpayer on or before the earlier of the date the taxpayer files an original return for the taxable year in which the contribution was made or the due date (including extensions) for filing the taxpayer's original return for that year. In the preamble to TD 8690, the Treasury Department (Department) and the IRS further emphasized this requirement, noting that [a] written acknowledgment obtained after a taxpayer files the original return for the year of the contribution is not contemporaneous within the meaning of the statute.'' Over the years, many taxpayers have challenged this requirement, and the Courts strictly construe its application literally.

Section 170(f)(8)(D) provides an exception to the CWA requirement. Under the exception, a CWA is not required if the donee organization files a return, on a form and in accordance with the regulations as the Secretary may prescribe, which includes the information described in section 170(f)(8)(B).

When the original regulations were issued in 1997, the Department and the IRS specifically declined to issue regulations under section 170(f)(8)(D) to effectuate donee reporting. Over the years, the Department and the IRS acknowledge that only a few requests to implement donee reporting have been received.

Jump starting the process which has resulted in these proposed regulations, the Department and the IRS have received arguments from taxpayers under examination for their claimed charitable contribution deductions that a failure to comply with the CWA requirements of section 170(f)(8)(A) may be cured if the donee organization files an amended Form 990, "Return of Organization Exempt From Income Tax," that includes the information described in section 170(f)(8)(B) for the contribution at issue. These taxpayers were arguing that an amended Form 990 constitutes permissible donee reporting within the meaning of section 170(f)(8)(D), even if the amended Form 990 is submitted to the IRS many years after the purported charitable contribution was made.

However, the IRS has consistently maintained that the section 170(f)(8)(D) exception is not available unless and until the Department and the IRS issue final regulations prescribing the method by which donee reporting may be accomplished. Moreover, the Department and the IRS have concluded that the Form 990 is unsuitable for donee reporting. It is intuitively obvious that these types of arguments has caused the Department and the IRS to address this issue once and for all.

Manner of donee reporting
The present CWA process requires that the acknowledgement provided to the donor contain information useful in preparing the donor's tax return for the year of the contribution. To effectively substitute for the CWA, any donee reporting process would require not only that an information return be filed with the IRS, but also that a copy be provided to the donor for use in preparing the donor's federal income tax return for the year of the contribution.

Section 170(f)(8)(D) provides that a donee organization must include the information described in section 170(f)(8)(B) on its return for the donor to qualify for the donee reporting exception. Accordingly, the proposed regulations require that donees who opt to use donee reporting must report that information as well as the donor's name, address, and taxpayer identification number.  

The donor's taxpayer identification number is necessary in order to properly associate the donation information with the correct donor. Unlike a CWA, which is not sent to the IRS, the donee reporting information return will be sent to the IRS, which must have a means to store, maintain, and readily retrieve the return information for a specific taxpayer if and when substantiation is required in the course of an examination.

In order to minimize the burden on donees, the proposed regulations provide that donee reporting is not required, but may be done at the option of a donee organization. If a contribution is not reported using donee reporting, then the donor must obtain a CWA. It appears also under the proposed regulations that it is not an all or nothing election, some donee information returns may be filled out and filed by the charitable organization, and for those contributions where an information return is not filed, a CWA must be issued to the donor.

Time of donee reporting
Section 170(f)(8) is premised on donors receiving timely substantiation of their donations of $250 or more.  The CWA assists a donor preparing a return (as well as the IRS examining the return) in determining whether, and in what amount, a donor may claim a charitable contribution deduction.

Accordingly, the proposed regulations provide that any information return under section 170(f)(8)(D) must be filed by the donee no later than Feb. 28 of the year following the year in which the contribution is made, and the donee organization must provide a copy of the information return to the donor by the same date. An information return that is not filed timely with the IRS, with a copy provided to the donor, will not qualify under section 170(f)(8)(D). The date of filing in the proposed regulations is Feb. 28, the same date when numerous other information returns must also be filed.

For donors to be relieved of the obligation to obtain a CWA, the donee must file the donee reporting information return, and communicate that it has done so to the donor, before the due date for the donor's return.

Content of return
A document will not qualify as a return for purposes of section 170(f)(8)(D) unless it contains all of the following information:

  • The name and address of the donee
  • The name and address of the donor
  • The taxpayer identification number of the donor
  • The amount of cash and a description (but not necessarily the value) of any property other than cash contributed by the donor to the donee
  • Whether any goods and services were provided by the donee organization in consideration, in whole or in part, for the contribution by the donor
  • A description and good faith estimate of the value of any goods and services provided by the donee organization or a statement that such goods and services consist solely of intangible religious benefits

Since the Department and the IRS will be considering public comments through mid-December 2015, we will keep you posted as to any changes made to the contents in the current proposed regulations.

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