“Honey, Where are the Receipts?”
The IRS rules on substantiating charitable contributions don’t make our task any easier. For any contribution over $250, your canceled check or other bank record proving payment isn’t good enough. Rather, IRS Publication 1771 tells us,
A donor cannot claim a tax deduction for any single contribution of $250 or more unless the donor obtains a contemporaneous, written acknowledgment of the contribution from the recipient organization.
In other words, you have to have an actual acknowledgment letter or receipt from every ministry or charity to which you give more than $250 in a year if you want that gift to qualify for an income tax charitable deduction.
And after getting the receipts, you have to keep the receipts–for a very long time. As a general rule, the IRS cannot audit tax returns more than three years after they are filed. That’s the basic statute of limitations. But here, from the IRS website on audits, is how they view that limitation:
Generally, the IRS can include returns filed within the last three years in an audit. If we identify a substantial error, we may add additional years. We usually don’t go back more than the last six years.
Well, I feel better! “We usually don’t go back more than the last six years.”
Even though the statute of limitations is three years, because there is no statute for filing a false or fraudulent return or for failing to file or for failing to report income, the IRS, as a practical matter, can usually reach back as far as they like. They need only allege a “false” filing. While the taxpayer would undoubtedly win in court if the IRS was being disingenuous, who wants to end up in that type of a fight?
The good news is that the problem of getting and keeping proper records for charitable giving purposes is easily solved! The solution begins with the fact that grants to a ministry or charity from an NCF Giving Fund are not tax deductible events. Rather, these are simply charity-to-charity transfers from our ministry to theirs.
Our Givers, in other words, do not claim income tax deductions as a result of the grants that they make from their Giving Fund to the ministries they support. These transactions have no impact on the Giver’s income tax deductions and are not reportable on a donor’s income tax return. Consequently, while we keep records of all such grants, our Givers don’t need to. Come April 15th, these are non-events.
The further good news is that we produce and maintain appropriate tax receipts for the funds that donors give us. That money is usually tax deductible. When donors (our Givers) need a receipt for tax purposes, they simply log into their Giving Fund account and print the receipt. It’s available as needed, on demand.
Using a Giving Fund for all of your charitable donations eliminates the need for any receipt but one–ours–which you can print any time. And just to be sure I was right, I logged into the Giving Fund that my wife and I use and looked back to a contribution we made in 2012. And there was the record and there was the receipt which I can print if we’re ever audited and the IRS wants to go back seven years.
If that day ever comes, of course, my wife will still need to ask me, “Honey, where’s that NCF receipt you printed?” When I can’t find it, at least I’ll be able to log on and print it again.