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“No goods or services were provided in exchange for this gift.”
That simple statement on gift receipt or substantiation letter provided to the donor at the time of a gift can prevent your donors from losing their charitable deductions. Yet, some churches do not provide a receipt with such language.
A recent case involved a donor couple who gave their church over $20,000 throughout the year. The church sent acknowledgements for the amount of their gifts, and the couple kept their canceled checks. When they prepared their income tax returns, they claimed the gifts as a charitable contribution deduction. Sounds reasonable, right?
The IRS denied their charitable deduction for the gifts to their church!
Why would the IRS do that? Because the couple did not receive from the church a proper acknowledgement of their contributions. A proper acknowledgement (for gifts to charity over $250.00) must be issued contemporaneously and must contain the amount of the gift, the date of the gift, and a statement that no goods or services were provided in exchange for the contributions. Even though the couple had received a statement from the church that showed the dates and amounts of the gifts, their deduction was disallowed because it did not contain the necessary language that no goods or services were provided in exchange.
In an attempt to cure the defect in the acknowledgment, the church issued new acknowledgements including the language. The IRS still denied the deductions because they were not contemporaneous, that is, they were not issued on or before the filing due date, or the date that the filing is made.
The couple filed suit in Tax Court against the IRS arguing, among other things, that they “substantially complied” with the statutory acknowledgment requirements. They had received timely statements acknowledging the gifts from their church, along with canceled checks, and produced these as evidence. The court agreed with the IRS and refused to allow the deduction.
This seems like a harsh result, but the bottom line is this: in order for your church’s donors to be able to claim gifts to your church as a charitable deduction, make sure you provide an acknowledgement to donors no later than January 31 of the year following the year the gifts were made, and that for any gift over $250.00, the acknowledgement has a statement that “no goods or services were received in exchange for this gift.” It is good practice to include this statement on all receipts and giving statements for charitable gifts. Providing appropriate receipts is part of the stewardship responsibilities of your church and helps encourage future gifts.
Is your church in compliance?