Nonprofit 411: Written Acknowledgements for Donors

By  Jeanne Pagnozzi,CPA, manager at BlumShapiroPagnozzi, Jeanne

As a 501(c)(3) charitable organization, you have the privilege of receiving charitable donations from the general public; however, you are also responsible for complying with federal law applicable to charities and churches that receive such tax-deductible donations.   These rules exist for non-profit entities in order to facilitate the strict recordkeeping and substantiation requirements imposed on donors and to receive a tax deduction on his/her federal income tax return.

Written Acknowledgements for gifts over $250:  The donor is responsible for obtaining a written acknowledgement in order for the donation to be tax-deductible.  Therefore, to best serve its generous supporters, the organization should provide a timely statement containing the following information:

  • Name of Organization
  • Amount of cash contribution
  • Description (but NOT the fair value) of non-cash donations
  • Statement that no goods or services were provided by the organization in return for the contribution (if that is a factual statement)
  • Description and good-faith estimate of the value of goods or services, if any, that an organization provided in return for the contribution (commonly referred to as “Quid Pro Quo” – see below)
  • All acknowledgements should be contemporaneous, typically no later than January 31 of the calendar year following the donation. Best practice would be to provide this acknowledgement within 30 days of receiving the gift.

Written Disclosure for Quid Pro Quo:  When a charity provides any goods or services in exchange for a donation, this is, in part, an exchange transaction, and in part, a contribution.  A donor may only take a tax deduction to the extent that the contribution exceeds the fair market value of the goods or services received.  It is the organization’s responsibility to provide the estimated fair market value, which must be in writing if the original payment exceeds $75.00.   Penalties may be assessed if an organization does not meet the written disclosure requirement.  The penalty is $10.00 per contribution, not to exceed $5,000.00 per fundraising event or mailing.

The written disclosure statement must:

  • Inform the donor that the amount of the contribution that is eligible for deduction for federal income tax purposes is limited to the excess of money (and fair market value of property other than money) contributed by the donor over the value of goods and services provided by the organization.
  • Provide the donor with a good-faith estimate of the fair value of the goods or services provided by the organization.
  • Be in writing and be made in a manner that is likely to come to the attention of the donor.  The statement may be included in the solicitation of the donation or provided along with a receipt of the donation.

Other:

  • Unreimbursed expenses may be another form of contribution, such as out-of-pocket transportation expenses in order to perform donated services or provided supplies for a program activity. In this case, the written acknowledgement should contain the same information listed above for donations over $250.00, except it also should include a description of the goods or services provided by the donor.
  • Non-cash donations with claimed fair market value greater than $5,000.00 generally require a qualified appraisal, which is the responsibility of the donor, not the charity.

This article, as well as other current news related to non-profits, can be found on Blum Shapiro’s newly launched blog.

 

Jeanne Pagnozzi, CPA, is a manager with BlumShapiro, the largest regional accounting, tax and business consulting firm based in New England, with offices in Massachusetts, Rhode Island and Connecticut. The firm serves as business advisors for today’s leading companies, non-profit organizations and government entities, working to strategically tailor and consistently deliver tested solutions for unlocking an organization’s full potential. For more information about BlumShapiro, visit blumshapiro.com. BlumShapiro is an affiliate member of MNN.