Sunday, October 19, 2014

IRS Requirements for Tax-Deductible Receipts

Anytime a donor contributes $250 or more (in one sum) to a nonprofit organization, this contribution can only be claimed as a tax deduction by the donor if the receiving nonprofit gives them a tax deductible receipt.

While nonprofits themselves are not required to give such receipts, they can greatly assist donors by doing so. The IRS has set forth 3 requirements for tax deductible receipts: They must (1) be contemporaneous with the donation; (2) be written; and (3) contain certain information.
Note that the first rules set forth below apply where the nonprofit has not furnished goods or services to the donor in return for the contribution. Following those general rules is a discussion of the additional requirements that become relevant when a nonprofit does provide goods or services in return for a donation.
Please note that the following discussion is not legal or tax advice and gives no guarantees of any kind. Moreover, the conclusions you reach based on the material below will depend upon whether you accurately judge the circumstances of your situation.
(1) Contemporaneous
The donor must receive the receipt by the earlier of: (1) the date on which the donor actually files his or her individual federal income tax return for the year of the contribution; or (2) the due date (including extensions) of the tax return.
(2) Written
There are no IRS forms available for these receipts, and the requirements are quite loose. Generally, letters, postcards, or computer-generated forms are acceptable. Moreover, the receipt can be a paper or electronic copy (such as an email).
(3) Required Information
The receipt must contain:
  1. The name of the nonprofit;
  2. The amount of cash contributed, or a description (but not the value) of a non-cash contribution; and
  3. One of the following:
    1. A statement that no goods or services were provided by the nonprofit in return for the contribution; or
    2. A description and good faith estimate of the value of the goods or services provided by the nonprofit in return for the contribution (see below for further explanation and examples); or
    3. A statement that goods or services, if any, that an organization provided in return for the contribution consisted entirely of intangible religious benefits (see explanation below)
A nonprofit may have offered goods or services in return for a contribution whenever the donor has received something of value in exchange for the donation. For example, where the donor contributed $100 to an organization, and by doing so, also gained admission to a conference put on by the organization, thereby receiving the value of the conference admission in return for the contribution. Goods and services include cash, property, services, benefits, or privileges. There are several exceptions, however:
Token exception: Goods or services received by a donor are not considered for the purposes of tax deductible receipts where they are “insubstantial.” Goods or services are considered “insubstantial” if they are free to the donor, worth $10.20 or less, and are unordered by the donor, or if they occur:
  1. In the context of a fund-raising campaign;
  2. The nonprofit informs the donor of the amount of the donation that is tax deductible by the donor; and
  3. Either:
    1. The fair market value of the benefits received by the donor does not exceed the lesser of 2% of the donation or $102.00; OR,
    2. The payment is at least $51.00, the only items provided bear the nonprofit’s name or logo (e.g., calendars, mugs, posters, etc.), and the cost of the items is $10.20 or less
Membership benefits exception: Where a nonprofit gives a donor membership benefits (annual recurring rights or privileges) in return for a contribution, these benefits are considered “insubstantial” if they are provided in exchange for an annual payment of $75.00 or less. Examples of such membership benefits include free parking, discounted admissions to the nonprofit’s facilities or events, discounts on purchases from the nonprofit’s gift shop, etc.
Intangible religious benefits exception: Intangible religious benefits are generally benefits provided by a nonprofit operated exclusively for religious purposes, and that are not usually sold in commercial transactions. For example, admission to a religious ceremony would be an intangible religious benefit, but education leading to a recognized religious degree would not.
Additional rules: Providing goods or services in return for contributions
Where a nonprofit provides goods or services to a donor in return for the donor’s contribution to that nonprofit, the donor can only take a contribution deduction to the extent to which their contribution exceeded the fair market value of the goods or services they received in return.
Thus, the nonprofit in such a case is required to provide a written disclosure statement to donors who make payments exceeding $75.00, partly as a contribution, and party for goods and services provided by the nonprofit.
The required disclosure statement must:
  1. Be in writing;
  2. Be made in a manner that is likely to come to the attention of the donor (for example, a disclosure in small print within a larger document would likely fail to meet this requirement);
  3. Be given to the donor in connection with either the nonprofit’s solicitation of the donor’s contribution, or the receipt of the contribution itself;
  4. Inform the donor that the amount of the contribution that is deductible for federal income tax purposes is limited to the excess of money (and the fair market value of property other than money) contributed by the donor over the value of goods or services provided by the organization; and
  5. Provide the donor with an estimate of the fair market value of the goods or services
Note that this written disclosure is not necessary if the goods or services provided fall under one of the three exceptions described above. Moreover, it is also unnecessary where there is no donative element in the transaction, such as where an individual makes a purchase at a nonprofit museum gift shop.

Your nonprofit can meet the needs of its donors by sending them a written receipt for their total annual gifts, at the end of the year, or at least by the date their taxes are due. As long as this receipt includes your nonprofit’s name, a sufficient description and/or amount of the contribution received, and a sufficient statement regarding whether any goods or services were given in exchange for the contribution, you will have satisfied the IRS requirements for a tax deductible receipt. Your donors can then legally claim a tax deduction for their contributions to your nonprofit.
More information on this topic is available in IRS Publication 1771, from which the above material was taken.