With the end of the year fast approaching, many organizations will be documenting contributions from their donors. In order for the donor to deduct the contribution, especially for contributions of $250 or more, documentation must be retained. The donor will require an acknowledgment letter from the organization. The Internal Revenue Service (IRS) is starting to request and examine these acknowledgment letters when auditing tax returns. Specifically, the IRS is looking for the language relating to any goods or services provided by the organization as well as substantiation of the actual donation.
For example, in Durden v. Commissioner, the taxpayer received an acknowledgment letter from their church that omitted the language related to goods and services provided. The IRS disallowed the taxpayer to receive credit for their contributions to the church stating that the acknowledgment letter received did not meet the criteria set forth in the statute.
For an acknowledgment letter to be considered valid, the following details must be included:
- The amount of cash and a description of property (but not the value) of any property other than cash contributed,
- Whether the organization provided any goods or services in consideration for the contribution, and
- A description and good faith estimate of the value of goods or services referred to in #2 above, or if such goods and services consist solely of intangible religious benefits, a statement to that effect.
For more information, contact your KSM advisor.