Donor Acknowledgment Letters & the IRS

Is your nonprofit organization in compliance with the IRS requirements for disclosure requirements? As scary as that statement sounds, I am simply checking to see if your organization has provided the appropriate information to your donors in the form of  acknowledgements/receipts/thank you letters to comply with tax law. There are some simple steps to take with your nonprofit organization to make sure you are not subject to penalties and to keep your supporters happy

A “donor acknowledgement letter” is essentially a donation receipt. It may look a bit like a “thank you” letter but contains key information for the donor and the IRS. If a donor contributes more than $250 or more as a single contribution (to a qualified tax-exempt nonprofit organization), they need a “donor acknowledgement letter” to claim a deduction on their tax return. Most nonprofit organizations provide timely “thank you”/”donor acknowledgment” letters to their contributors throughout the year as donations are received. Most people appreciate receiving acknowledgment for the gift as soon as possible, although not the law, it’s just good manners! It is also a good practice to send a year-end summary “donor acknowledgment letter” detailing their contributions of $250 or more (as a single gift) by January 31 of the following year. In the letter, you must include the following:

1. the name of organization (and EIN #)

2. the amount of cash contribution

3. a description (but not the value) of non-cash contribution

4. a statement that no goods or services were provided by the organization in return for the contribution, if that was the case

5. a description and good faith estimate of the value of goods or services, if any, that an organization provided in return for the contribution

6. a statement that goods or services, if any, that an organization provided in return for the contribution consisted entirely of intangible religious benefits, if that was the case

You can read more about these in the IRS Publication 1771. The IRS Publication 1771 also provides excellent information on donations under $250 and the documentation needed for a donor’s tax returns (if claiming a deduction for the contribution). As for the letter, there is no specific format of delivery (e.g. email or print). You can send emails or letters. This is also a great time to continue communicate with your donors, thanking them for their support. Although it is not required by the IRS, if a donor contributed under $250 in a single donation and requests a letter…give them one. Just because it’s not legally mandated doesn’t mean it’s not a good practice. As with most IRS and legal mandates, there are potential penalties for not following the written disclosure requirement (although can be avoided if you can show the failure was due to a reasonable cause). The easiest thing to do to avoid this, keep good records and follow the simple rules of providing appropriate documentation for your donors.

 

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