The Importance of Written Acknowledgements to Nonprofit Organizations

Thanks to a federal income tax deduction that encourages donors to provide generous financial support, both a donor and the organization supported by the donation benefit from such contributions.  However, a recent Tax Court opinion, Durden v. Commissioner, illustrates the importance of proper substantiation of charitable contributions. 

Section 170 of the Tax Code generally allows for charitable contributions, but any contribution of $250 or more must be documented by a contemporaneous written acknowledgement (CWA) from the charitable donee.  The contents of a CWA must include [IRC Sec. 170(f)(8)(B)]:

• The amount of cash and a description (but not value) of any property other than cash contributed;
• Whether the donee organization provided any goods or services in consideration, in whole or in part, for any property contributed; and
• A description and good faith estimate of the value of any goods or services provided by the donee to the donor or, if such goods or services consist solely of intangible religious benefits, a statement to that effect.

The recent emphasis falls on the CWA meeting all of the requirements and being contemporaneous.  In Durden v. Commissioner, the donors obtained two acknowledgements:  one acknowledgement was contemporaneous, but did not contain the required information, and the other acknowledgement contained the required information, but was not contemporaneous.  And, the court eventually ruled with the IRS in refusing to accept either acknowledgement.

While we understand that it is generally up to the donor to ensure they receive proper substantiation, we advise nonprofit organizations to understand the requirements.  We believe the knowledge will help to preserve donors’ charitable contribution deductions.  Please contact our nonprofit team with any questions.

Related Article: Tax Tip: 9 Things the IRS Wants Taxpayers to Know About Charitable Giving
Related Article: Claiming Charitable Donation Deductions – What Donors and Charities Need to Know.