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Keep Your Donors Out of Trouble with the IRS

In her terrific book Keep Your Donors, Simone Joyaux sums up the process as “Give, ask, send thank you notes”. Of course raising funds in the nonprofit world is more difficult than that, but the “thank you notes” need to be more than being politely grateful.

The IRS recently won a summary judgment against a couple that disallowed their charitable deduction for gifts made to their church. According to a recent newsletter from Leimberg Services, the tax deduction for the donation was disallowed because the church “lacked a statement regarding whether any goods or services were provided in consideration for the contributions”. Even after the church confirmed that no consideration was involved, the IRS disallowed the deduction because the acknowledgement was not contemporaneous.

So, according to the National Council of Nonprofits, your gracious thank you letters to donors should contain:

  • A statement that the nonprofit is a charity recognized as tax-exempt by the IRS under Section 501(c)(3);
  • Either (a) amount donated (if cash or cash equivalents); or (b) description of the property donated (the nonprofit should not attempt to assign the cash value of the property in your letter – that is the donor’s responsibility);
  • The date the donation was received;
  • Either:
    • (a) statement whether your organization provided any goods or services in return for the donation, such as, “No goods or services were received in return for this gift“; or
    • (b) if the gift was $75 or more and the nonprofit did provide something of more than insubstantial benefit in return for the gift, (such as tickets to a special event or a dinner), then the charity must include a good faith estimate of the value of the goods/services provided (such as the market value of tickets to the event or the actual cost of the dinner – even if it was donated to the charity).
Allan Huntley

Author Allan Huntley

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