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Posted on May 14, 2013

The U.S. Tax Court recently ruled that an individual who had donated over $22,000 to his church could not take a tax deduction for the contribution because the church had not sent the donor the proper acknowledgment. According to the IRS, 501(c)(3) organizations must send a contemporaneous written acknowledgment to donors of over $250 stating:

• Name and address of the charity, date of contribution, and amount of contribution; and
• Whether charity provided any goods or services in return for the contribution. If so, charity must provide a good faith estimate of the value of these goods.

Because the church did not include a statement in the acknowledgment that the donor had not received anything in exchange for their donation, the IRS took the position that no portion of the $22,000 was deductible.

The Tax Court also held that the acknowledgment must be “contemporaneous” meaning that it must be received prior to the donor’s filing of the tax return or the due date of the return (including extensions), whichever came first. The church wasn’t able to fix their mistake after the fact by sending a revised acknowledgment because it was received too late.

You can avoid this very uncomfortable situation with your donors by making sure you promptly send an acknowledgment with the required language.

Click here for our guide to sending proper acknowledgments.

Click here for the IRS guide to Substantiation and Disclosure Requirements.