IRS Proposes Changes to Substantiation Rules for Charitable Contributions

Clarifying what the agency has proposed—and what it could mean for churches.

You may have seen recent accounts in the national media regarding a new IRS regulation that will require churches to obtain the Social Security numbers of donors and provide them to the IRS. I want to explain what has happened and address whether church leaders need to be concerned.

In October, the IRS issued a proposed regulation amending the substantiation rules for charitable contributions: Internal Revenue Bulletin 2015-41. Generally, proposed regulations are published for public comment, and then the IRS issues a final regulation based, in part, on the public input provided. The public comment period for this regulation ends on December 16, 2015, after which the IRS will consider all the public comments and issue a final regulation.

The proposed regulation is only a page long, and it makes a proposed change in the way charitable contributions are substantiated. There are five things for church leaders to note:

1. Under current law, any charitable contribution of $250 or more must be substantiated by a contemporaneous written acknowledgment from the charity that lists the name and address of both the charity and donor, the amount of the contribution, a statement of whether goods or services were provided by the charity in return for the contribution other than intangible religious benefits, and an estimate of the value of any goods or services the charity provided. This has been the law for many years.

The proposed regulation would provide an alternate way to substantiate contributions of $250 or more. Rather than the charity issuing the donor a contemporaneous written acknowledgment, it would file a form called a “donee information return” with the IRS by February 28 of the following year, listing the same information as a written acknowledgment, but, in addition, disclosing the Social Security numbers of donors making one or more contributions of $250 or more.

2. The donee information return disclosing donors’ Social Security numbers would be entirely voluntary. Churches and charities that prefer not to disclose donors’ Social Security numbers could simply continue to provide contemporaneous written acknowledgments to donors as they have in the past, reporting the information mentioned in section 1 above, which does not include donors’ Social Security numbers. Let me quote the text of the proposed regulation: “Donee organization reporting is not required. Donee reporting is available solely at the option of a donee organization.”

3. The proposed regulation has no effect on any contribution of less than $250.

4. The regulation in question is proposed, not final. It may be amended or even rescinded by the IRS. This is exactly what happened in 2009 when the IRS issued a similar regulation, but later rescinded it based on a General Accountability Office (GAO) study demonstrating that contributions to charities would plummet with the enactment of such a regulation due to donors’ concerns over identity theft. Most Americans are deeply concerned about the risk of identity theft. Just imagine how this risk would be elevated by churches obtaining donors’ Social Security numbers and then transmitting them to the IRS. Would churches have sufficient safeguards to protect this information from identity thieves? For many churches, especially smaller ones with poor internal controls, the answer is no. And, according to the GAO, this would cause many donors to discontinue making contributions to their church and favorite charities.

5. Congress can step in at any time and overturn an IRS regulation. It is likely that the current Congress will call a halt to the proposed regulation, even if the IRS fails to do so. This likely will be fueled by formidable opposition from all sectors of the nonprofit community, since every public charity will be adversely affected by the proposed regulation. Even though disclosing the Social Security numbers of donors on a donee information return would be voluntary, and few if any churches or charities would voluntarily comply, some donors will be sufficiently confused and distressed by this development to scale back their contributions, especially those of $250 or more. This was exactly what the GAO found in 2009.

Richard R. Hammar is an attorney, CPA and author specializing in legal and tax issues for churches and clergy.

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