In a recent Tax Court decision the IRS prevailed when a taxpayer had not obtained proper acknowledgement of his deduction from the charity. As a general rule, a charitable contribution of $250 or more must be substantiated with a contemporaneous written acknowledgment from the recipient charitable organization.

The contemporaneous written acknowledgment must include this information:

1.The amount of the cash contribution and/or a description (but not the value) of any non-cash property contributed.
2.Whether the recipient charity provided any goods or services in consideration, in whole or in part, for any property described in clause (1).
3.A description and good faith estimate of the value of any goods or services referred to in clause (2).
We have a Client Information Bulletin on this subject together with a sample acknowledgement form that meets the IRS substantiation requirements. If you would like a copy, please contact me.

In the Tax Court case noted above, the taxpayer had a contemporaneous written agreement with the charity relative to his donation. However, that written agreement was not signed by the charity and did not contain all of the ingredients required by the regulations. Obviously, the taxpayer and his attorney felt strongly enough about their position to bring this issue all the way through the IRS appeals system to the U.S. Tax Court - only to lose.

The tax court was especially troubled by the lack of any mention of the information required in clause #2. The taxpayer indicated that the written agreement they executed with the charity indicated that it was written in its entirety. But the Tax Court indicated that the specific language required in a properly executed acknowledgement must address whether the charity provided any good or services in consideration for the donation and if none, that should be so stated.

While the form and content of a charitable donation receipt is an issue of utmost importance to the donor, I believe it is good donor relations for charities to completely understand all of the tax implications of gifts they receive. The last thing a charity wants to learn is that a good donor has experienced difficulty with the IRS. Since charities are in the business of receiving gifts regularly, donors rightly expect that the charity is more knowledgeable of the donation receipt regulations than the donor might be. So, while the Internal Revenue Code writes this regulation as one applicable to the donor, charities should be very aware of the methods on complying.

One last point: notice that these are contemporaneous written acknowledgement regulations. In the past, many donors sought written acknowledgement of their past donations when challenged by the IRS. That is no longer possible under the current regulation. Donors must have obtained written acknowledgement conforming to the regulations at the time of the donation – not two years later when the IRS is auditing their return.