The "Charitable Contribution Tax Act of 1992"

• The "Charitable Contribution Tax Act of 1992" (Senate bill 2979), if enacted, would require charities to provide written acknowledgement to any donor of a contribution of $100 or more. The bill contains the following two provisions of interest to churches:

1. No deduction shall be allowed . . . for any contribution of $100 or more unless the taxpayer substantiates the contribution by a contemporaneous written acknowledgment of the contribution by the donee organization . . . .

An acknowledgment meets the requirements of this [bill] if it provides information sufficient to substantiate the amount of the deductible contribution. If the contribution was made by means of a payment part of which constituted consideration for goods or services provided by the donee organization, the acknowledgment must provide a good faith estimate of the value of such goods or services. . . . [A]n acknowledgment shall be considered to be contemporaneous if the taxpayer obtains the acknowledgment on or before the earlier of—(i) the date on which the taxpayer files a return for the taxable year in which the contribution was made, or (ii) the due date (including extensions) for filing such return.

2. If [a charitable organization] receives a quid pro quo contribution, the organization shall, in connection with the solicitation or receipt of the contribution—(1) inform the donor that the amount of the contribution that is deductible for federal income tax purposes is limited to the excess of the amount of any money and the value of any property other than money contributed by the donor over the value of the goods or services provided by the organization, and (2) provide the donor with a good faith estimate of the value of such goods or services. For purposes of this section, the term "quid pro quo contribution" means a payment made partly as a contribution and partly in consideration for goods or services provided to the payor by the donee organization.

What would be the impact of this bill on churches (if it is enacted)? Many churches currently provide written acknowledgements of contributions to all donors. These churches would not be affected by the bill. There is nothing more that such churches would be required to do. The bill does not require that any governmental form (e.g., Form 1099) be filed with the IRS. What about churches that currently do not issue written acknowledgement of charitable contributions to donors? These churches would be affected to a minimal degree. To the extent that any donor makes an individual contribution of $100 or more, the church would have to issue the person a written acknowledgement of the contribution. The acknowledgement need not be on any official form. The bill specifies that an acknowledgment is satisfactory "if it provides information sufficient to substantiate the amount of the deductible contribution" and it is "contemporaneous" (i.e., the taxpayer obtains the acknowledgment on or before the earlier of the date on which the taxpayer files a return for the taxable year in which the contribution was made, or the due date for filing such return).

The bill's "quid pro quo" provision will not apply to most churches. Under this provision, a charity that solicits specified contributions in return for a specified product or service must (1) inform donors that their "contributions" are deductible only to the extent they exceed the fair market value of the product or service received in exchange, and (2) provide donors with a good faith estimate of the fair market value of the product or service. Quid pro quo contributions would include a "premium" offered by a radio or television ministry in exchange for a specified contribution, counseling services offered by a church at a prescribed hourly rate, or a private school education provided in exchange for a specified tuition fee. None of these payments would be deductible except to the extent they exceed the fair market value of the product or service provided in return.

The bill is illustrated by the following examples.

• Example. A member contributes $50 every week to the church. No written acknowledgement would be required.

• Example. Same facts as the previous example, except that the member makes a single contribution of $250 for missions. The church would have to issue a written acknowledgement of the $250 contribution. The acknowledgement need not be on any particular form. It need only be in writing, and issued not later than the date the taxpayer files his or her tax return for the current year (or the due date for the filing of such return). Generally, this will mean that the written acknowledgment must be provided to donors not later than April 15 of the following year. Note that no government forms (1099 or anything else) need be completed by the church, and there is no form that the church files with the government. The church's sole obligation is to provide the donor with a written acknowledgement.

• Example. In January of each year, First Church provides all members with annual written summaries of their contributions for the previous year. This procedure fully complies with the bill, and there is nothing else that First Church would be required to do (assuming that it does not solicit quid pro quo contributions).

• Example. A small church receives no individual contribution of $100 or more. It is not affected by the bill (assuming that it does not solicit quid pro quo contributions).

• Example. A religious television program solicits contributions by offering to give donors a special book. This is a "quid pro quo" contribution. If enacted into law, the bill would require the religious organization to (1) inform the donor that the amount of the contribution that is deductible for federal income tax purposes is limited to the excess of the amount of any money contributed by the donor over the value of the product provided by the organization, and (2) provide the donor with a good faith estimate of the value of such product.

In summary, the bill would not have a major impact on churches since (1) most churches currently provide their members with periodic contribution summaries that would fully comply with the bill's requirements; (2) many smaller churches have few if any donors who contribute one-time offerings of $100 or more; (3) there is no "penalty" imposed on a church for not providing donors with a written acknowledgment of their contributions (the penalty is imposed on the donors, who cannot claim a charitable contribution deduction on their tax return of any individual contribution of $100 or more without a written acknowledgment from their church); (4) a declining percentage of taxpayers (perhaps as few as 15%) are able to itemize their deductions on Schedule A (Form 1040), and these persons are unaffected by the bill even if their church fails to provide them with a written acknowledgement of their contributions of $100 or more; and (5) most churches do not solicit quid pro quo contributions. Nevertheless, there are some churches that currently do not issue periodic written acknowledgement of charitable contributions, and these churches will have to begin doing so in order to assure the deductibility of individual contributions of $100 or more. Church Law & Tax Report has contacted every member of the Senate Finance Committee, including the two major sponsors of this bill (Senators Moynihan and Danforth) to urge an exemption for churches, or at a minimum, a substantial increase in the $100 amount. Sadly, there will be a few unscrupulous individuals who will attempt to "profit" from this proposed legislation by alarming churches of the "dire consequences" of not complying. They will offer their questionable and excessively-priced services as a church's "only remedy." Our advice—stay away from any organization that uses such tactics. As noted above, the impact of this bill upon most churches, even if it is enacted, will be minimal or non-existent.

© Copyright 1992, 1998 by Church Law & Tax Report. All rights reserved. This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is provided with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a competent professional person should be sought. Church Law & Tax Report, PO Box 1098, Matthews, NC 28106. Reference Code: m52 c0592