Posted October 16, 2012

As organizations increasingly use gift receipts to communicate with donors about programs and impact (and to ask for further contributions), failing to include the required statement regarding goods and services has become a common mistake.  The IRS has occasionally disallowed the deductions of donors issued these noncompliant gift receipts, but signs suggest the IRS will soon be cracking down. 

On May 17, the U.S. Tax Court upheld $9,062 in deficiencies and penalties imposed by the IRS against a Texas couple who had deducted $22,517 in contributions to their local church.  The IRS disallowed the couple’s deductions because the gift receipts provided by their church did not include the required statement regarding goods or services provided in exchange.

By way of background, gift receipts for contributions of $250 or more generally must include two items:  (1) the amount of cash or a description of the property contributed, and (2) a statement indicating whether the organization provided any goods or services in exchange.  If no goods or services were provided in exchange, then the statement ordinarily reads:  “No goods or services were provided in exchange for your contribution.”

In court, the Texas couple argued that they had substantially complied with the law (and there was no dispute that they made the contributions), but the court accepted the IRS’s strict interpretation.  On the heels of this victory, the IRS will very likely direct its agents to disallow any contributions of $250 or more that are substantiated by noncompliant gift receipts.  

It is very unpleasant to hear from a donor that the organization’s mistake resulted in his or her charitable contribution deductions being disallowed by the IRS, so do not forget to include a no goods or services statement in your gift receipts.

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