IRS Pulls Alternative Substantiation Method Proposed Regulations

Amid a furor over privacy concerns, the IRS has pulled its proposed regulations under Section 170(f)(8)(D) that provided an alternative method of substantiation for charitable donations of $250 or more.

Up until the proposed regulations were issued in September, the only manner for substantiation was the contemporaneous written acknowledgement, which requires a donor to obtain from the recipient charitable organization a receipt that includes the following:

  • the amount of cash received and a description (but not a valuation) of any non-cash property received;
  • whether the organization provided any goods or services in exchange for the cash or property received; and
  • a description and good faith estimate of any goods and services provided by the organization for the cash and property received.

The contemporaneous requirement means that the donor must receive the acknowledgement before the earlier of:

  • the date on which the donor files a tax return for the year in which the contribution is made, or
  • the due date (including extensions) for such tax return.

The new regulations provided an alternative manner for substantiation, where the charitable organization would report to the IRS on a new form containing donor taxpayer identification numbers or social security numbers.

Concerns were raised during the comment period that the new reporting system would leave taxpayers vulnerable to identity theft and would place a substantial burden on charities to protect donor information. In response to the nearly 40,000 comments, the IRS took the unusual step of issuing an email clarification in December to try to reassure commentators that taxpayer information would only be disclosed to the IRS and the applicable donor. See related blog post here.

However, the email apparently did not have the calming effect the IRS was hoping for, as legislation was introduced in both the House and the Senate to prevent charitable organizations from obtaining social security or tax identification numbers from donors. The IRS withdrew the proposed regulations late last week, and it looks like contemporaneous written acknowledgements will be the only available substantiation method for donations of $250 or more for the foreseeable future.

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