Tax Acknowledgment Letter
IRS Requesting Additional Documentation
In
recent audits, the IRS has asked conservation easement donors to
provide them “contemporaneous written substantiation” of their
donations from their donee. If you are not providing such a letter to conservation easement donors, you should! – it is far easier to write a short and simple letter for your donor than to have to explain to your donor why you didn’t.
Donors taking a tax deduction for their gift are required to obtain
“contemporaneous written substantiation” for a charitable contribution
of $250 or more. In short, donors need to get a letter (or email) from the charity acknowledging the gift.
To be "contemporaneous" the written substantiation must generally be in
the donor’s hands before they files their tax return for the year the
contribution is made. If the donee provides goods or services to the
donor in exchange for the contribution (a quid pro quo contribution),
the letter must include a good faith estimate of the value of the goods
or services the donee provided. This most commonly happens in a
“bargain sale” of land or a conservation easement to a land trust.
The donee is not required to record or report this information to the
IRS on behalf of a donor. The donor is responsible for requesting and
obtaining the written acknowledgment from the donee. Although there is
no prescribed format for the written acknowledgment, it must provide
sufficient information to substantiate the contribution. For more
information, see Publication 1771.
Examples of donor acknowledgment letters from Vermont Land Trust:
Detailed rules for contemporaneous written acknowledgments are contained
in Section 170(f)(8) of the Internal Revenue Code and Section 1.170A-13(f) of the Income Tax Regulations.
Detailed
rules for written disclosure statements (detailing any “quid pro quo”
received by the charity, such as the payment in a bargain sale
situation) are contained in Section 6115 of the Internal Revenue Code
and Section 1.6115-1 of the Income Tax Regulations. The penalty rules
are contained in Section 6714 of the Code. All of this information can
be found on the IRS Web site at www.irs.gov .
202-638-4725
, or email us at policy@lta.org
