Lost Tax Deductions
By Julie Steinbacher
There are many ways to donate to nonprofits and support causes. But as a recent Tax Court decision reveal, it’s very important to receive a detailed donation receipt from charities. In Albrecht v. Commissioner, a widow lost a $464,000 tax deduction of art and artifacts because the donation receipt that she had received from a museum did not state that she had not received any goods or services in exchange for the contribution. While I doubt that many of us are sitting on a half a-million-dollar art collection, it’s important to note that this decision only impacted the donor, not the nonprofit. It is best practice for nonprofits to issue a donation acknowledgement shortly following a donation, and preferably, an end of year summary if you have donated more than once. However, the optimal documentation isn’t always provided to the donor. Since the responsibility of providing the IRS with proof of donation falls to the donor, here are the basics of what a well-crafted, IRS-optimized donation letter should include:
- Tax-exempt status statement: Statement that the organization is a 501c3 tax-exempt organization. The nonprofit’s EIN should be included to demonstrate tax-exempt status.
- Name of the nonprofit and name of the donor
- Date of the contribution: The date the donation was received.
- Contribution Details
- For cash (checks, credit card, payroll deduction): The amount of the contribution that was received.
- For non-cash gifts: A description (but not the value) of the non-cash contribution.
- Statements – Good Faith Estimates of Value of Goods or Services. Did the donor receive any goods or services in exchange for the gift?
- A statement that no goods or services were provided by the organization in exchange for the contribution, if that was the case.
- If any goods or services were provided by the organization in exchange for the contribution, the letter should include a description and good faith estimate of the value of those goods or services. (Example: A fundraising dinner event where some of the funds received from the donor pays for the actual dinner, while the rest is a donation.)
- If the goods or services that were provided to the donor were insubstantial token amounts, that should be noted. (Example: When a small gift is given to the donor with the nonprofit organization’s name or logo on it like a bumper sticker, coffee mug. See below.) Or a statement should be provided if goods or services (if any) that the nonprofit provided in return for the contribution consisted entirely of intangible religious benefits, if that was the case.
If you do not receive a letter with the information above and plan to use your donation as a tax deduction, reach out to the organization and request one.