IRS Nixes Unpopular Charitable Donation Substantiation Rules

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By Diane Freda

Jan. 7 — The IRS has withdrawn proposed rules that would have allowed charities to directly report donors' contributions to the agency, saying it won't implement an exception to the current “contemporaneous written acknowledgement” (CWA) requirement for substantiating contributions of $250 or more.

The Internal Revenue Service had been flooded with comment letters opposing the proposal released in September (180 DTR G-7, 9/17/15).

In withdrawing the rules (REG-138344-13) Jan. 7, the IRS cited the substantial number of public comments it has received questioning the need for donee reporting, and especially, the collection and maintenance of Social Security numbers for use on a new information return.

“In response to those comments, the Treasury Department and the IRS have decided against implementing the statutory exception to the CWA requirement, and therefore that exception remains unavailable unless and until final regulations are issued prescribing the method for donee reporting,” it said.

The IRS had proposed allowing charities, if they chose, to directly report donations to the agency. Currently donors are responsible for reporting that information to the IRS. Usually the substantiation comes in the form of a letter from the charity thanking the donor for their support.

The agency would have created a new form specifically for the purpose of reporting donations, which would have required that donors provide their Social Security numbers as taxpayer confirmation and that charities track and keep that information.


Sources told Bloomberg BNA that the IRS was forced into issuing the guidance because some taxpayers under examination for their claimed charitable contribution deductions have argued that their failure to get the specified written statement could be fixed by the charity filing an amended Form 990, Return of Organization Exempt From Income Tax, that includes the donor's contribution information.

Sometimes the donors were urging charities to file the amended returns years after the purported charitable contribution were made, IRS said.

While Congress allowed the IRS to provide an exception to the CWA, that was only an option if the charity filed a return on a form and in accordance with regulations that Treasury Department would prescribe. Form 990 is unsuitable for this purpose, the IRS said, and the agency has now said it has decided against implementing the statutory exception.

Therefore, the CWA will continue to be the only way to confirm contributions. The CWA must be obtained by the donor no later than when he or she files their tax return for the year the contribution is made and must state that no goods and services were received in exchange for the contribution.

Three Cheers and More

When it proposed the alternative method of reporting, the IRS stressed that it was optional for charities to adopt. However, that didn't keep charities and donors from complaining loudly.

Goodwill Industries International Inc. entities all across the country, other charities big and small, and comments from the American Bar Association Section of Taxation and Independent Sector all said the risk of identity theft was too great for donors to give their Social Security numbers to the organizations (243 DTR G-5, 12/18/15).

Some said it would lead to a requirement, rather than an option, that charities report directly to the IRS and it would most certainly make donors want to give less.

“I am pleased the IRS has listened to reason and has scrapped this plan,” Sen. Pat Roberts (R-Kansas), said in a Jan. 7 statement. “The rule would have had a chilling effect on charitable giving and would have added a costly burden to charitable organizations.”

Roberts had introduced a bill, S. 2370, the Protecting Charitable Contributions Act, to block the proposed rule from taking effect.

Risk of Identity Theft

Independent Sector and the National Council of Nonprofits also applauded the move. The regulation would have exposed the public to increased risk of identity theft, created more cost for nonprofits, and created public confusion and disincentives for donors to give to worthy causes, Independent Sector said.

Tea Party Patriots Inc.took some credit for the withdrawal of the rules, saying it launched a grassroots campaign to flood the IRS with more than 16,000 comments on the proposal. That accounted for 43 percent of the more than 37,000 total comments received, it said. The group said it would continue to fight any attempt by the IRS to “improperly expand its power and threaten American citizens and their liberties.”

Americans for Limited Government President Rick Manning called it “excessive regulation” that would have increased the IRS's ability to target and harass conservative nonprofits.

The withdrawal notice is scheduled to appear in the Jan. 8 Federal Register.

To contact the reporter on this story: Diane Freda in Washington at

To contact the editor responsible for this story: Cheryl Saenz at

For More Information

Text of the notice withdrawing REG-138344-13 is in TaxCore.