Billions of dollars are contributed every year by individuals to qualified organizations in the United States.  As a result, many of the organizations we work with receive charitable contributions from the general public.   However, too often, I find that not all organizations understand what is required of them when they receive charitable contributions.  There are three basic questions all organizations should know the answers to when accepting charitable contributions.

What is the dollar threshold for providing a written acknowledgement letter?

Organizations receiving a single contribution of $250 or more or that provide goods or services to donors who contribute $75 or more are required to provide written acknowledgement to the donor.  The most common examples in which goods or services are provided to donors are ticketed events, such as an annual dinner or gala and contributions received for silent or live auction items.  These types of contributions are also referred to as quid pro quo contributions.    Since the donor is receiving benefit by attending the event or obtaining the auction item won, the tax deductible portion is only the amount of the contribution that exceeds the value of benefit received.  It is the organization’s responsibility to provide the donor with a good-faith estimate of the value of the goods or services provided.

What information must the organization include in the written acknowledgement letter? 

To properly substantiate charitable contributions, organizations should include the following information in written acknowledgement letters to their donors:

• The name of the organization and the contribution amount received
• Description of non-cash contribution received
• Statement that no goods or services were provided in return for the contribution, if applicable
• Description and good-faith estimate of the value of the goods or services provided, if any, in return for the contribution
• Statement that the only benefit received was an intangible religious benefit, if applicable

When and in what form is the organization required to provide written acknowledgement to the donor? 

Acceptable forms of written acknowledgement include: letters, postcards or computer generated forms and it can be provided to the donor in paper copy or electronically, such as an e-mail.  Organizations should provide written acknowledgement as timely as possible and the closer to the receipt of the contribution the better.  However, the IRS deadline says that the donor must receive written acknowledgement on or before the earlier of the date the donor filed their return for the year the contribution was made or the due date including extensions for filing the return.  As a rule of thumb, most organizations provide written acknowledgement by January 31 of the year following the receipt of the contribution.

It is also important to understand that by providing written acknowledgement to the donor, the organization is providing proper substantiation for the donor to claim the charitable contribution as a tax deduction on their personal return.  Without such written acknowledgement, the donor cannot substantiate the deduction and in the case of an IRS audit the deduction may be disallowed.  As you can see, it is in the best interest of the organization to assist its donors by providing timely written acknowledgement with all of the information required by the IRS to substantiate a charitable contribution.

For more information, contact Jenny Ryan at 312.670.7444. Visit ORBA.com to learn more about our Not-For-Profit Group.