The IRS had been considering reversing course and issuing regulations under a provision added to the IRC in 1993. In proposed regulations (REG-138344-13) the IRS proposed a method by which a charity might file an information return with the IRS that would satisfy the contemporaneous acknowledgement requirement for donations in excess of $250 required by IRC §170(f)(8). However these regulations attracted a storm of controversy and in REG-138344-13
Original Proposed Regulation (Now Withdrawn)
The preamble of the original proposed regulations described the general requirement as follows:
Section 170(f)(8)(A) requires a taxpayer who claims a charitable contribution deduction for any contribution of $250 or more to obtain substantiation in the form of a contemporaneous written acknowledgment (CWA) from the donee organization. Under section 170(f)(8)(B), while the CWA need not be in any particular form, it must contain the following information: (1) the amount of cash and a description of any property other than cash contributed; (2) whether any goods and services were provided by the donee organization in consideration for the contribution; and (3) a description and good faith estimate of the value of any goods and services provided by the donee organization or a statement that such goods and services consist solely of intangible religious benefits.
The CWA must also be contemporaneous. Under sections 170(f)(8)(C) and 1.170A-13(f)(3), a CWA is contemporaneous if it is obtained by the taxpayer on or before the earlier of the date the taxpayer files an original return for the taxable year in which the contribution was made or the due date (including extensions) for filing the taxpayer's original return for that year. In the preamble to , the Treasury Department and the IRS further emphasized this requirement, noting that “[a] written acknowledgment obtained after a taxpayer files the original return for the year of the contribution is not contemporaneous within the meaning of the statute.” (1997- 1 CB 68).
However, Congress had provided an option for the IRS to allow for direct confirmation by the charities to the IRS. IRC §170(f)(8)(D) provides:
(D) Substantiation not required for contributions reported by the donee organization. Subparagraph (A) shall not apply to a contribution if the donee organization files a return, on such form and in accordance with such regulations as the Secretary may prescribe, which includes the information described in subparagraph (B) with respect to the contribution.
When the IRS issued the general regulations implementing the provisions of IRC §170(f)(8) in December 1996 the agency declined to issue guidance on this provision. Now, nearly 19 years later, the IRS decided to propose such guidance.
The IRS’s reversal of position was not the showing of the return of the “kinder/gentler” IRS giving taxpayers an additional way to document contributions. Rather the IRS was finding that, given the lack of IRS guidance on the provision, some taxpayers were arguing on examination that a charity could file a revised Form 990 with the IRS to report the contribution. As the preamble notes:
In recent years, some taxpayers under examination for their claimed charitable contribution deductions have argued that a failure to comply with the CWA requirements of section 170(f)(8)(A) may be cured if the donee organization files an amended Form 990, “Return of Organization Exempt From Income Tax,” that includes the information described in section 170(f)(8)(B) for the contribution at issue. These taxpayers argue that an amended Form 990 constitutes permissible donee reporting within the meaning of section 170(f)(8)(D), even if the amended Form 990 is submitted to the IRS many years after the purported charitable contribution was made. The IRS has consistently maintained that the section 170(f)(8)(D) exception is not available unless and until the Treasury Department and the IRS issue final regulations prescribing the method by which donee reporting may be accomplished. Moreover, the Treasury Department and the IRS have concluded that the Form 990 is unsuitable for donee reporting.
The IRS has been tough on the documentation issue in recent years, including denying a deduction for what was clearly a contribution in cases where the only flaw was that the receipt the taxpayer had failed to show that nothing of value was received even though nothing actually was received by the taxpayer and the charity later acknowledged that fact (for instance, see the case of Durden v. Commissioner, TC Memo 2012-140).
The IRS proposal would have require a charity that elected to document contributions under this rule to file a form on or before February 28 of the year following the year of the contribution. That form would have contained the following information:
- The name and address of the donee;
- The name and address of the donor;
- The taxpayer identification number of the donor (this would prove to be the lightning rod for the controversy);
- The amount of cash and a description (but not necessarily the value) of any property other than cash contributed by the donor to the donee;
- Whether any goods and services were provided by the donee organization in consideration, in whole or in part, for the contribution by the donor; and
- A description and good faith estimate of the value of any goods and services provided by the donee organization or a statement that such goods and services consist solely of intangible religious benefits. [Proposed Reg. §1.170A-13(f)(18)(ii)]
Only a timely filed information reporting form would qualify as support for the deduction in lieu of the CWA, so the form could not be filed by the charity at the time the examination took place. [Proposed Reg. §1.170A-13(f)(18)(iii)]
Charities would not have been required to file these forms, but could choose to do so. If they did so they would provide a copy to each donor of the information reported that contained only that donor’s information.
As a practical matter there appeared to be little incentive for a charity to provide this reporting absent donor demand for the filing (which, given the controversy, certainly doesn’t to have had any real chance of happening). The charity would need to send out an information return containing the exact information that would constitute CWA and send a copy to the IRS. If the charity didn’t use the reporting method, only a single notice to the donor was needed.
Rather this seems more of the IRS deciding to protect itself against the position of the taxpayers claiming that the charity can file a report years later with the IRS during an exam if the taxpayer either doesn’t have a CWA or the taxpayer’s acknowledgement is flawed in some way (such as omitting the line regarding what was received from the charity).
Given that the Tax Court clearly indicated in Durden that it felt the result required by the law was grossly unfair, the IRS appeared uncomfortable that a court would use the lack of IRS regulations for what could be viewed as a relief provision might be used by the courts to allow taxpayers an “escape hatch.”
Withdraw of the Regulation
The IRS failed to anticipate how this would be viewed by various writers, especially in view of increasing concerns about identity theft and fraud.
A number of articles appeared in various media noting that charities using that reporting mechanism would be obtaining donor’s social security numbers under this proposal. More than a few went on to state that providing a social security number would be required (the general press and internet blogosphere getting facts wrong is nothing terribly new).
But to be fair to the press and blogger’s, the IRS’s apparent real goal (to prepare a form they didn’t expect any charity to really file just to eliminate a potential exposure when the IRS went to disallow a charitable decution) wasn’t one that the IRS ever openly stated—nor, frankly, would it necessarily reflect well on the agency to have a long discussion over the propriety of issuing regulations whose sole goal is protect a litigating position.
On January 8, 2016 the IRS formally withdrew the regulations. However in REG-138344-13 the IRS goes on to specifically state that the statutory “alternative” system is not available to taxpayers until and unless regulations are issued (that is, the Form 990 amendment is not an acceptable alternative method).