The end of the calendar year also marks the end of the fiscal year for many, if not most, religious organizations. The Internal Revenue Service (IRS) uses the calendar year to mark the fiscal year for individuals so there are several things that a religious organization must do to remain in compliance with the IRS as well as keep your donors feeling good about giving your organization money or goods of value.
One way that donors feel good about giving to your organization is the tax deduction they receive for their charitable deduction. If they itemize their deductions, they can claim this on their income tax return and reduce their tax burden. Believe it or not, the IRS does NOT want to collect more tax than they have to. They are generally hard-working federal employees who want to ensure they collect only the tax information that they are require to under the law and not a penny more. Really, that’s true!
Tax Deductible Evidence
The IRS has three requirements before a donation can be claimed by the donor on their income tax return:
- The Donor must have a bank record or written communication from a charity for any monetary contribution.
- Donors are responsible for obtaining written acknowledgement from a charity for any single contribution of $250 or more.
- Charitable organizations (that’s you) are required to provide a written disclosure to a donor who receives goods or services in exchange for a single payment of $75 or more.
These requirements do not apply to a vehicle donation. There are different rules for those which will be the subject of a future posting.
The IRS also provides several other publications that can help you, as a charitable religious organization, advise your donors on what is and is not deductible as a charitable donation as well as to assure your donor that you are a 501(c)3 organization that can legally accept donations.
If you accept donated property as well as cash, you must determine the value of that donated property in order to provide the written acknowledgement or disclosure to your donor. The rules are spelled out in IRS Publication 561.
Religious Organization’s Written Disclosure to the Donor
The written disclosure for donations that you receive over the $250 amount must include the name of the charity, date of contribution, and the amount. It must also include a statement that the organization does not provide goods or services in whole or partial consideration for any contribution made to the organization. If the donor provides the contribution by payroll deduction, the organization must use the same statement and add contributions made by payroll deduction.
The written disclosure must contain:
- The name of organization
- The amount of cash contribution
- A description (but not the value) of non-cash contribution
- A statement that no goods or services were provided by the organization in return for the contribution, if that was the case (and should be for a religious organization)
- A description and good faith estimate of the value of goods or services, if any, that an organization provided in return for the contribution (again, this should not be the case for a religious organization)
- A statement that goods or services, if any, that an organization provided in return for the contribution consisted entirely of intangible religious benefits, if that was the case (this is the one you should be using)
IRS rules allow for any format or by letter, postcard or computer-generated forms so long as they contain the required information. One thing that you should NEVER put in this acknowledgement — the donor’s social security or tax ID number. You don’t need this so don’t ask for it.
Use Your Written Disclosure to Generate Future Donations
The written disclosure must also be “timely”. For a one-time contribution, you should aim for a response back to the donor within 48 hours. If that is not possible, then by the end of a week. The IRS requirement is that the acknowledgement reach the donor by 31 January of the year following the donation, or before the donor files the income tax return. If this is the case, then why should you respond within 2-7 days? Simple, it pays to say “Thank you”. Remember the last time you received a thank you note. How did it make you feel? You may have smiled and remembered the gift you gave. We want donors to remember their gifts to us as well.
Thank the donor within 48 hours, but not longer than a week. Add information to the written disclosure that goes beyond the minimum requirements of the IRS. Tell the donor how the contribution is being used (good for individual projects) and how many people are being helped. Keep the donor on your mailing list (be sure to include a provision for opting out of email lists – this will be another topic for another day).
At the end of the year, every charity in the United States sends out requests for donations with the reminder that donations must be made by December 31st to meet be deductible in the current tax year. I receive many of these with most of them ending up in the shredder (yet another topic). Which ones catch my attention? The ones where they thanked me early in the year for my gift. You can also add another written disclosure since the donor may have lost their original one. This lets the donor know that you are looking out for their best interests and not just your own.
The specific letters are not difficult to set up on a good word processor. You can add calendar reminders on shared staff calendars to ensure the process is visible to all staff. To make the first letter more personal, you can have specific board members add a personal note and hand sign the letters. If your organization is not large, this should not be an onerous task. If your organization is larger, then you can have several board members share the responsibility. Don’t photocopy the signature — people can tell if the signature is real or not. Donors like to give to real people for real causes. Be real for them.
Intangible Religious Benefits
Here’s how the IRS describes intangible religious benefits:
Intangible Religious Benefits Exception — If a religious organization provides only “intangible religious benefits” to a contributor, the acknowledgment does not need to describe or value those benefits. It can simply state that the organization provided intangible religious benefits to the contributor.
What are “intangible religious benefits”? Generally, they are benefits provided by a tax-exempt organization operated exclusively for religious purposes, and are not usually sold in commercial transactions outside a donative (gift) context. Examples include admission to a religious ceremony and a de minimis tangible benefit, such as wine used in a religious ceremony. Benefits that are not intangible religious benefits include education leading to a recognized degree, travel services and consumer goods.
This is a round about legalese way of saying that this is what churches do. Other nonprofit organizations offer tangible benefits such as education courses, zoo memberships, and museum admissions. So long as the church, synagogue, mosque, or other religious institution stays within the realm of religion, and doesn’t provide anything that goes beyond that, then they should be fine.
Unreimbursed Expenses
If a donor provides out-of-pocket donated services for the organization without reimbursement, the donor must ask the organization for a written acknowledgement that includes:
- A description of the services provided by the donor.
- A statement whether the organization provided goods or services in return for the contribution.
- A description and good faith estimate of the value of the goods or services, if any, that the organization provided (this should not apply to a religious organization).
- A statement that the goods or services provided by the organization, if any, consisted entirely of intangible religious benefits.
The donor must maintain the records of the expenses incurred but not reimbursed. The example cited by the IRS is the unreimbursed travel costs for a donor to attend the organization’s conference.
Resources from the Internal Revenue Service
The material for this post was gleaned from the IRS publication 1771 Charitable Contributions: Substantiation and Disclosure Requirements. A copy is contained in the Resource page.
If you want to discuss this in more detail, please leave a comment. We reserve the right to remove comments that we deem offensive.
Disclaimer
The information in this article is not meant to replace tax advice from your accountant or attorney or the United States Internal Revenue Service. For definitive guidance, please consult them. We are not liable for your actions taken in response to this article.
