Complacency is Not an Option
Each year tax-exempt organizations in the United States receive hundreds of millions of dollars in donations. Donors contributing to 501(c)(3) organizations are able to deduct their own contributions from their taxes, subject to IRS limitations. Recently, a higher standard deduction has been put in place through the Tax Cuts and Jobs Act. This will likely diminish the number of taxpayers and donors who itemize their deductions, making it tempting for charities to decide that receipting donations is no longer important. However, charities should continue to exercise care in receipting donations for the benefit of the donor.
Most organizations are probably familiar with how to receipt cash contributions since cash is the most common type of donation. Because of this, organizations may become complacent in receipting cash contributions and fail to properly receipt them to donors. This is not an area where an organization should become complacent because the IRS requires strict compliance with its gift substantial rules. Full compliance is necessary for the donation to be claimed as a deduction. We are aware of cases where donations of millions of dollars could not be deducted because the contribution receipt omitted the phrase, “No goods or services were provided in exchange for the donation.” An example of this is a case where a donor was unable to deduct a $64.5 million donation because the contribution receipt was missing that particular statement. The IRS grants no leniency in this area, so organizations should be extremely cautious and verify they properly substantiate cash contributions.
Other types of donations are not as easy to receipt and can present difficult for the charity and the donor. For instance, donations of tangible property–such as cars, boats, or artwork–require qualified appraisals. The requirements of each appraisal can be different depending on the type of property and its value. The donor is responsible for obtaining the appraisal, but charities need to provide substantiation of the contribution to the donor. Donors and charities would be wise to carefully evaluate what is needed to properly substantiate the donation and who is responsible for each component so that the contribution may be deducted.
Donations of real estate, securities, and conservation easements can be even more complicated. Case law is replete with examples where multi-million dollar deductions were denied because a donation was made a few days later than it should have been or information was missing from the contribution substantiation materials. In one case, a contribution of real estate worth $33 million was not able to be deducted because the preparer failed to fill out one line of an IRS form asking for the donor’s basis. The IRS requires contributions to be properly substantiated at the time the donor fills his or her tax return. Even though the donor could easily prove the basis at trial, the deduction was denied because the donation was not properly substantiated when the return was filed.
Tax-exempt organizations should continue to carefully comply with IRS requirements to properly receipt contributions. Fewer donors may rely on these receipts due to the higher standard deduction, but the organization can never know who will need them and who will not. In some cases, failure to properly receipt a donation can result in thousands or millions of dollars in lost tax benefits to the donor, which may also result in a loss or decline of their contributions to the organization in subsequent years.
This article is provided for general information and should not be relied upon as legal advice for a specific situation. If you are in need of specific advice or legal representation, please do not hesitate to contact us.
©2018 Bea & VandenBerk
 15 West 17th Street, LLC v. Commissioner, 147 T.C. 19 (2016).
 RERI Holdings I, LLC v. Commissioner, 149 T.C. 1 (2017).