Sen. Pat Roberts, R-Kan., has introduced a bill to block a proposed regulation from the Internal Revenue Service and the Treasury Department that would give nonprofits the option of asking donors for their Social Security numbers to substantiate donations of more than $250.
“The rule would provide the IRS detailed information on who is making donations to particular charities,” Roberts said in a speech on the floor of the Senate.“The IRS has already threatened donors in groups that it doesn’t like. I don’t think we can trust them with a new source of data on donors. There also is no assurance that the agency will stop at this voluntary rule and move to make such reporting mandatory for all contributions and all charities.”
Under current law, the responsibility to substantiate the contribution is on the donor. Most nonprofits provide that information to the donors for their record-keeping.
Instead, the proposed IRS regulation would allow a charity to substantiate charitable contributions by filing a return with the IRS that includes detailed donor information. If the charity elects to file the return, it must provide the donor’s name and address, the donor’s Social Security number, the amount of cash and a description of any property other than cash contributed, whether the charity provided any goods or services in consideration for the contribution, and a description and good faith estimate of the value of any goods or services provided by the charity.
“Given that the agency has not yet adequately addressed the issues surrounding breaches of existing taxpayer information, a point the IRS readily acknowledges, and states that the existing system of substantiating charitable contributions works well, there is no compelling tax administration or enforcement reason to move forward with this proposal,” said Roberts.
Roberts’ bill would block the proposed rule from taking effect and maintain the current law.
Charitable organizations have been speaking out against the IRS proposal (see Charities Concerned about IRS Proposal to Provide Social Security Numbers of Donors). Tim Delaney, president and CEO of the National Council of Nonprofits, recently wrote: “…the IRS proposal would open the door for scam artists…Nonprofits have neither the financial resources nor sufficient staffing to combat hackers who will see an easy source for Social Security information. This also creates a liability nightmare for innocent nonprofits…To be asked to share their address, their credit card number and their Social Security number all in the same place would be enough to scare even the most committed donor to decline to give.”
The IRS said last week that the proposed rule would only be an option for charities. “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 stressed 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. “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.”
Roberts is adamantly opposed to the optional substantiation method proposed by the IRS. “This rule is ridiculous,” he said. “If the intent is to crack down on fraud, the IRS should not create rules that will add to the problem. They have already proven that the IRS itself can’t safeguard personal and private information from abuse. Why would they burden non-profits with this collecting information that will be expensive to keep, could discourage donations and would encourage hacking?”
Roberts went on to say, “This rule could dramatically reduce people’s willingness to make donations, and burden charities, many of which are small, volunteer operated organizations with new costly administrative costs. The collection and safekeeping issues surrounding this proposal could very significantly stress the good works done by our charitable sector.”
Delaney made a similar point, stressing, “Every donation not given means another senior who won’t receive a meal, a child who won’t receive life-saving medical care, another animal without a home, and much more.”
Those wishing to share their concerns with the proposed rule can comment here.
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