Jonathan Ackerman Law

Some Happenings – Donee Reporting

Charity Advisor Resource Newsletter - Volume 4.1 (2015)

By Jonathan Ackerman, Esquire

Compliance with State Charitable Solicitations Laws - Courts Rule on Disclosure of Unredacted Schedule B of IRS Form 990 – In 2015, two federal courts ruled that charities must disclose an unredacted Schedule B from their IRS Forms 990 to the States for purposes of registering with the States to comply with their charitable solicitations laws – Center for Competitive Politics v Harris (CA) and Citizens United v Schneiderman (NY).

In general, Schedule B requires a list of certain donors (who have contributed more than $5,000 in a single year) and donation amounts. Though the charity in the California decision argued that this disclosure requirement violated its, and its donors, First Amendment rights, the U.S. Court of Appeals for the Ninth Circuit held that the California Attorney General has a compelling interest in enforcing the laws of the state and that the disclosure requirement bears a "substantial relation" to the "sufficiently important" government interest of law enforcement. In addition, the Court found that the mandated disclosure requirement relates only to the state, and not to the general public, as the unredacted Schedule B is maintained by the state as a confidential document and not open to public inspection.

However, the California case was pending with the U.S. Supreme Court via a Writ of Certiorari. Interestingly, it is my understanding that a number of amicus briefs were filed in that case, and included several other states which were siding with the Petitioner. Nevertheless, on November 11, 2015, the Supreme Court denied the Writ of Certiorari, and the California case in the Ninth Circuit will stand and is final.

IRS Issues Proposed Regulations on Alternative Reporting of Charitable Donations – The Proposed Regulations under Code Section 170[1] implement an exception to the "contemporaneous written acknowledgement" requirement for substantiating charitable contributions of $250 or more. The Proposed Regulations provide rules concerning the manner and time for donee organizations to file information returns that report the required information about contributions.

As background, Section 170(f)(8)(A) of the Internal Revenue Code 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 Code 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.

However, Section 170(f)(8)(D) provides an exception to the CWA requirement, if the donee organization files a return with the IRS, on such form and in accordance with such regulations as the Secretary may prescribe, that includes the information described in Section 170(f)(8)(B). To effectively substitute the CWA, a copy of the information return must also be sent to the donor for use in preparing his or her federal income tax return for the year of the contribution.

Anyone interested in this exception to the contemporaneous written acknowledgement substantiation rule should review the Proposed Regulations under Code Section 170[1].

Please note that the IRS and Treasury are requesting public comments on a variety of issues relating to this proposed exception, and it's highly likely that they will receive a number of comments and concerns in that regard. One of the biggest concerns that will be expressed relates to the charitable organization obtaining the social security number of their donors for this purpose.

So, there will be more to report about this issue.