Nonprofits are expressing concern about proposed regulations from the Internal Revenue Service and the Treasury Department that could give charities the option of providing Social Security numbers of donors who contribute more than $250 to their organizations.
The proposed regulations would allow, but not require, charitable nonprofits to file a new, separate information return with the IRS (in addition to the Form 990) by February 28 every year to substantiate contributions of more than $250 in value. The new informational tax return, called a “donee report,” would require the nonprofit to collect the donor’s name, address, and Social Security number or other taxpayer identification number. Nonprofits that use the option would also be required by that date to provide a copy to each donor listed (but only the portion that contains “information related to that donor”). The IRS is accepting public comments on the proposed rule change through December 16.
The National Council of Nonprofits, a group representing 25,000 not-for-profits, is taking a stand against the proposed rules. “The National Council of Nonprofits’ position is that the proposed voluntary reporting regime is inappropriate because the process could impose significant costs and burdens on nonprofit organizations, would create public confusion and disincentives for donors to support the work of nonprofits, and could lead fraudulent actors to increase targeting donors and reputable nonprofit organizations,” said the group in a statement. “Moreover, Treasury and the IRS state in the proposed rule that the current system of contemporaneous written acknowledgement of donations ‘works effectively, with the minimal burden on donors and donees.’ Adding a potentially confusing parallel reporting regime that needlessly introduces the risks of fraud, identity theft, and decreased donations to the community should be rejected.”
The group is encouraging nonprofit organizations and leaders to submit comments on the proposed regulations before a final decision is made, pointing out that a number of organizations and individuals have already submitted comments expressing concern.
The IRS emailed a statement last week to clarify its intent. “The IRS released proposed regulations in September that would potentially implement an optional, alternative way of substantiating donations for some donors that is provided by statute,” said the IRS. “This project was prompted because some donee organizations and donors were interested in using this option.”
The IRS emphasized that there have been some “major misimpressions and inaccuracies” about the purpose of these proposed regulations. “It’s important to keep in mind this proposal would impose no mandatory changes to existing rules on how charities substantiate donations for donors,” said the IRS. “Charities could continue doing things as they do now, and the IRS anticipates that the vast majority will. This option is not currently available, and will not be available until final regulations, which are prospective, are issued.”
The proposed regulations would simply implement an alternative way of substantiating donations of $250 or more that is provided by the statute, according to the agency. “The IRS is sensitive to the concerns expressed to this point, and encourages comments from the charitable community and other affected parties,” said the IRS statement. “The IRS continues to review public comments as they are received, and the comment period remains open until Dec. 16, 2015.”
In recent years, the IRS noted, some donors under exam have argued that their failure to obtain contemporaneous substantiation of their charitable contribution can be fixed by requesting that the charity amend its Form 990 as an alternative to satisfying the donor’s substantiation requirements.
“The IRS has consistently maintained that an alternative substantiation method is not available until regulations are in place prescribing the method for charities to do this,” said the IRS statement. “The Treasury Department and the IRS have concluded that the Form 990 is an unsuitable reporting method for this purpose. The purpose of these regulations is to consider appropriate alternatives to amended Forms 990.”
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