Boy, Treasury’s Been Busy… Prop Regs under Section 170
In the third piece of guidance issued over the last seven days, the IRS issued proposed regulations under Section 170(f)(8) last week. On September 17, 2015, the IRS issued a notice of proposed rulemaking regarding the donee reporting exception to the contemporaneous written acknowledgement requirements for charitable contributions.
Code Section 170(f)(8) requires a taxpayer claiming a Section 170 charitable contribution deduction in excess of $250 to substantiate the contribution by a contemporaneous written acknowledgement received from the charity, which must include certain designated information and be provided in a timely manner (a.k.a, contemporaneously!). You all are familiar with the “thank you for your contribution – you have received no goods and services in consideration for your contribution” letter. That letter is designed to be the “contemporaneous written acknowledgement” or “CWA” required to be sent by the charity and retained by the donor for purposes of Section 170(f)(8) substantiation.
However, the statutory language of Section 170(f)(8) contains an exception to the general rule disallowing contributions that are not substantiated by a CWA. Under Section 170(f)(8)(D), a donor’s deduction will not be disallowed if the charity files a return (on a form and in a manner set forth in Treasury Regulations) that includes the information otherwise required to be disclosed on the CWA.
Even though this statutory language exists, the preamble indicates that the IRS purposely never issued regulations implementing the donee reporting provisions of Section 170(f)(8)(D). The “goods and services” letter methodology was working out well enough, and there had been no outcry for charity reporting. Apparently, the issue has arisen in a litigation context, however, with donors who had failed otherwise to use the CWA substantiation methodology trying to save their deductions with alternative documentation – specifically (according the preamble, anyway) by having the charity file an amended Form 990.
In the proposed regulations, the IRS states that Form 990 disclosure is not adequate for a CWA substitute under Section 170(f)(3)(D). Accordingly, the proposed form to be filed by the charity would set forth all of the information required on the CWA, the name and address of the charity, and the name, address, and tax ID of the donee. The charity must send a copy of this new form to the IRS and to the donor (unlike the CWA, which just goes to the donor). In each case, must be provided by February 28th of the year following the year of contribution – which is earlier than the CWA, which is generally due by April 15th of the following year (unless the donor files his or her tax return earlier).
It’s not obvious to me when a charity would elect to do this in lieu of the existing CWA letter – did the IRS make it purposefully difficult so that no charity would use it? In each case, the charity still needs to mail something to the donor – in the donee reporting case, the charity must also send the form to the IRS and sent earlier than the due date of the Form 990, so there really isn’t any cost savings. As a practical matter, it seems to me that these regulations do very little other than place a road block in front of individuals trying to litigate their way around a substantiation foot fault.
If you are interested, comments are due by December 16, 2015.
EWW