December 03, 2019

IRS withdraws proposed donee substantiation rule

Opposition from the ABA and others led the Internal Revenue Service (IRS) to withdraw a proposed donee substantiation rule in January that would have encouraged charitable organizations to collect and report confidential information, including Social Security numbers, from donors contributing $250 or more.

Under current law, donors wishing to take a deduction for their charitable contributions of at least $250 must obtain a contemporaneous written acknowledgment (CWA) or receipt from the donee organization. The proposed rule would have created a specific-use information tax return containing information about charitable contributions received from donors that the donee organization could then submit to the IRS and the donor as an alternative to providing a CWA to donors.

However, the proposal would have required donee organizations to collect their donors’  Social Security numbers and include this sensitive information in the new returns.

“The potential cost in terms of burden on donees, inhibition of donations, and possibly increased identity theft of donor Social Security numbers far outweigh the potential slight administrative benefit to the IRS,” ABA President Paulette Brown wrote to the IRS in December. She emphasized that requiring nonprofit organizations – many of which are small and sparsely staffed – not only to collect donor Social Security numbers if they want to file an informational tax return regarding donors but to protect those Social Security numbers from cyber attack seems “unnecessary, highly risky and overkill.”

Therefore, the justification offered for the proposed rule “does not remotely merit the substantial change to be effected by the proposed rule,” Brown concluded.