Gift Substantiation Proposed Regulations

The U.S. Treasury Department and the Internal Revenue Service published proposed regulations in September that would have permitted, but not required, charitable nonprofits to file a new, separate information return with the IRS (in addition to the Form 990) by February 28 every year to substantiate contributions of more than $250 in value. A new informational tax return (“Donee Report”) would have required the nonprofit to collect the donor’s name, address, and Social Security number or other taxpayer identification number. Nonprofits taking this option would also have been required by that date to provide a copy to each donor listed (but only the portion that contains “information related to that donor”). 

Status Update

The proposed regulation is being withdrawn in response to the nearly 38,000 public comments submitted during the regulatory process. Comments from 215 nonprofits made the case that the collection of SSNs would “expose the public to increased risk from identity theft, impose significant costs and burdens on nonprofit organizations, and create public confusion and disincentives for donors to support the work of nonprofits.” In separate detailed comments, the National Council of Nonprofits challenged the procedural irregularities in the rulemaking process and demonstrated that the proposal to collect SSNs runs counter to IRS’ own advice, the policies of law enforcement agencies across the country, and clear directives from the federal government and Congress.

On December 17, Representatives Keith Rothfus (R-PA-12) and Brian Higgins (D-NY-26) introduced the Charitable Giving Privacy Protection Act (H.R. 4281), a bipartisan bill designed to prevent the IRS from requiring or accepting donor Social Security numbers as part of the gift substantiation process. This narrowly crafted bill, endorsed by the National Council of Nonprofits, would fix the primary problem raised by the nonprofit community concerning the need for protecting donors, nonprofits, and the public from identity theft. See the news release on the bill. Another bill introduced by Senator Pat Roberts (R-KS) and Representative Matt Salmon (R-AZ) seeks to block the rulemaking (S. 2370/ H.R. 4311).

Where We Stand

The National Council of Nonprofits’ position is that the proposed voluntary reporting regime is inappropriate because the process could impose significant costs and burdens on nonprofit organizations, would create public confusion and disincentives for donors to support the work of nonprofits, and could lead fraudulent actors to increase targeting donors and reputable nonprofit organizations. Moreover, Treasury and the IRS state in the proposed rule that the current system of contemporaneous written acknowledgement of donations “works effectively, with the minimal burden on donors and donees.” Adding a potentially confusing parallel reporting regime that needlessly introduces the risks of fraud, identity theft, and decreased donations to the community should be rejected. Read the National Council of Nonprofits' Analysis of the Gift Substantiation Proposed Regulations.

Resources

• Notice of Withdrawal of Proposed Regulation, Treasury Department and Internal Revenue Service (Jan. 7, 2016)
• Charitable Giving Privacy Protection Act (H.R. 4281) (news release)
• National Council of Nonprofits Statement on IRS Withdrawal of Proposed Nonprofit Gift Substantiation Rulemaking (Jan. 7, 2016)
• Independent Sector Statement on IRS Withdrawal of Proposed Nonprofit Gift Substantiation Rulemaking (Jan. 7, 2016)
• IRS Proposed Regulations on Substantiation Requirement for Certain Contributions (REG-138344-13)
• Formal Comments of the National Council of Nonprofits in Opposition to the Proposed Gift Substantiation Regulation (Dec. 16, 2015)
• Nonprofit Community Comments in Opposition to the Proposed Gift Substantiation Regulation (Dec. 15, 2015)
• Joint news release from Independent Sector and the National Council of Nonprofits (Dec. 15, 2015)
• Analysis of the Gift Substantiation Proposed Regulations, National Council of Nonprofits
• Key Considerations and Concerns of the nonprofit community (talking points)
• IRS web resources on fighting identify theft:
  • IRS YouTube Video: Protect Yourself From Identity Theft (@:44)
  • Identity Theft Information for Taxpayers (IRS Publication 5027)
  • Identity Protection Tips (IRS website, last reviewed or updated: November 9, 2015)
• Taking the Mystery Out of Filing Comments on Proposed Rules, National Council of Nonprofits
• View comments already submitted by concerned citizens.