Under a new Internal Revenue Service (IRS) proposed rule, tax-exempt 501(c)(3) nonprofit organizations (and other tax-exempt entities able to receive charitable contributions) would have the option of filing a new informational return with the IRS by February 28 each year to substantiate donor contributions of $250 or more (Donee Reporting). (Note that all references to "nonprofit organizations" and "charities" in this article refer only to these particular organizations, not to all nonprofits.) Donee Reporting would require nonprofit organizations to collect donors' names, addresses and Social Security numbers, and then provide them to the IRS.
Currently, in order for donors to claim charitable income tax deductions for contributions of $250 or more on their tax returns, they must obtain contemporaneous written acknowledgments (CWA) from the nonprofit receiving the donation that include the following information: (1) the name of the organization; (2) the amount of the cash donation or a description (but not the value) of the non-cash property donated; (3) a statement of whether the nonprofit organization provided any goods or services as a result of the contribution and, if so, a description and good faith estimate of the value of such goods or services; and (4) a statement that the only benefit received was an intangible religious benefit, if that was the case. See IRS Publication 1771.
Donee Reporting under the IRS proposed rule would provide nonprofits with an alternative to the CWA by creating a new process through which they report contributions of $250 or more directly to the IRS. Donee Reporting is intended to make it easier for donors to substantiate their donations in order to claim a charitable deduction, since each contribution would be associated with a donor Social Security number. However, this would require donors to provide nonprofits with their Social Security numbers, which raises significant privacy and identify theft concerns.
Critics of the IRS proposed rule are concerned with the potential increase in the number of identity thefts as a result of Donee Reporting, noting that hackers have accessed individuals' personal information maintained by large for-profit companies and federal government agencies that presumably have the resources to combat such breaches. Requesting donors' Social Security numbers means that nonprofits will need to invest limited resources in increased data security in order to collect, store and protect donors' personal information, which could prove very costly, particularly for smaller organizations. Moreover, critics have said that the IRS proposed rule makes it easier for fraudulent actors to prey on donors. A fraudulent solicitor could simply tell a prospective donor that the charity cannot accept their contribution unless the donor provides his/her Social Security number; unfortunately, some donors will end up falling victim to these identity thieves. The apprehension about these privacy and identity theft concerns could result in reduced contributions to charities.
Critics of the IRS proposed rule also have said that donors might think twice about making donations to a charity if they are required to disclose their Social Security numbers, claiming that Donee Reporting would put donors in the untenable position of choosing between supporting charities or sharing their sensitive, personal information. The current CWA process, according to the IRS, "works effectively, with minimal burden on donors and donees, and the Treasury and the IRS have received few requests...to implement a donee reporting system." Critics have concluded that change seems unnecessary when the current system is working just fine, particularly if the change creates problems for both charitable organizations and donors that do not currently exist.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
