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:

• For a outright easement donation
• For a bargain sale of an easement

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 .

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