A Refresher on Receiving Donations

Photo: kay snowden, client services managerBy Kay Snowden
TSNE Client Services Manager

Kay Snowden reminds TSNe-Bulletin readers about the basics of accepting donations as the end of the calendar year approaches. Kay has been at TSNE since 1998 and currently serves as client services manager for TSNE’s Fiscal Sponsorship Program.

Many organizations are planning their year-end appeals. A prompt acknowledgement of the donation is good practice for your organization. In addition, you need to be sure you comply with IRS requirements in order for your donors to be able to claim tax deductions. Here’s a refresher on what the IRS requires:

  • The donor needs a “contemporaneous” written acknowledgement of any single contribution of $250 or more from your organization in order to be able to claim a tax deduction. Contemporaneous is understood to mean that the donor needs to have this acknowledgement before filing his or her tax return. Many nonprofits make sure their acknowledgements have been sent prior to January 31 of the following year.
  • New record-keeping requirements were instituted in 2006 which dictate that donors need to have either a bank record or a receipt/acknowledgement to support a tax-deductible cash contribution of any amount. While the onus is on the donor, you can help your donors by providing a receipt or acknowledgement for gifts of less than $250.
  • If the donor receives goods or services in return for a contribution, it is termed a quid pro quo contribution. In this case, the donor needs to know the “fair market value” of the goods and services which he or she received in order to determine how much of the contribution can be claimed as a tax deduction. You must provide contemporaneous written acknowledgement for any contribution exceeding $75 if goods and services were provided to the donor. This information can be provided as part of the solicitation (e.g., a ticket stub for an event) or as a receipt. Your nonprofit can be subject to penalties if you don’t comply.

Your acknowledgement letter should include:

  • the name of your organization
  • the date of the contribution
  • the amount of the contribution
  • a statement as to whether or not goods and services were provided

You can simply state, “No goods or services were provided in return for this contribution” if that is the case. If you provided goods and services, you need to:

  1. provide the donor with a good-faith estimate of the value of goods or services, and
  2. inform him or her that the amount of the contribution that is deductible for federal income tax purposes is limited to the excess of the contribution over the value of goods or services provided by the charity.

Reporting to the IRS

The responsibility for reporting gifts to the IRS falls entirely on the donors. You have no reporting requirements, other than to recognize the revenue on your financial statements.

When It Gets Complicated

More Articles by Kay Snowden

Fortunately, the process is quite straightforward for most cash donations. Some factors may make your acknowledgements more complicated; for example, if you receive gifts of securities, if you receive in-kind donations (e.g., used computer equipment), and when you provide goods and services that aren’t easily valued, or are “insubstantial.”

The challenge in most of these cases has to do with determining value and, in some cases, establishing the date of the gift. This is where that old disclaimer, “consult your tax accountant”, comes into play. The IRS has some user-friendly information on their website. Also see IRS Publication 1771 for more detail and examples, including draft wording – it’s clearly written and very useful.

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