DONATION receipts and “intangible religious benefit”

Hello again DONATION advisors. This blog post is only for those of you in the U.S.A.

A couple of users over the last week have advised me of a court decision that seems to require receipts from churches (or other religious organizations) to include wording saying that the donors received only “intangible religious benefits” in exchange for their donation. In the court decision, because that wording was not included, the donation was not allowed to be claimed as a tax deduction.

One reference on this that was brought to my attention is: http://www.openforum.com/articles/simple-tax-error-costs-couple-25000-deduction/. You can also see the IRS publication http://www.irs.gov/pub/irs-pdf/p1771.pdf.

So, I’m assuming I should change the wording:

“Pursuant to Internal Revenue Code requirements for substantiation of charitable contributions, no goods or services were provided in return for the Tax Deductible contributions”

to instead read something like:

“Pursuant to Internal Revenue Code requirements for substantiation of charitable contributions, no goods or services were provided in return for the Tax Deductible contributions, except for intangible religious benefits”.

First of all, do you agree with this change? Any better suggestions for how exactly to change the wording?

Obviously, this change should only be for churches or other religious bodies, so there will have to be a way in the program to specify that the organization is such a body. Perhaps an option on the Maintenance -> Receipt Options window?

While the program can change this wording on the built-in receipts for the U.S.A., I think existing users who are using the mail-merge version of the receipts will have to be instructed to add the wording in themselves, because I (and the program) cannot know whether they have already made such a change.

Obviously I need to do something about this very quickly, and advise users that they may need to send out corrected receipts with the revised wording.

Thanks in advance for any comments those of you in the U.S.A. have on this.

9 thoughts on “DONATION receipts and “intangible religious benefit”

  1. OK, I’ve just seen a post from a competitor suggesting that the wording should include “Goods or services that the church provided in return for the contribution consisted entirely of intangible religious benefits”. Any comments? I would hesitate to use the word “church”, since there are definitely other sorts of religious bodies. So perhaps something more like “Goods or services that were provided in return for the contribution consisted entirely of intangible religious benefits”?

    • Dan – simpler is better. This should be fine! No need to have the “Pursuant to” and legalistic hoo-haa, nor to specifiy if it’s a church or a non-profit – that should be obvious in the letterhead or other identifying information in the body of the receipt. My 2 cents.

  2. I would go with “No goods or services other than intangible religious benefits were provided in exchange for the contribution”. But I’m also okay with “Pursuant to IRS requirements for substantiation of charitable contributions, no goods or services other than intangible religious benefits were provided in exchange for the contribution”.

  3. This is a sticky situation because it could potentially call into question the integrity of Software4NonProfits AND those registered charities using DONATION. I am familiar with the problem in a Canadian context where the not for profit needs to regulate the intentions of the donor to match the intent of the legislation. In the context I speak of, the receipting Not For Profit needs to provide a guarantee, YES, a guarantee, that the donor is not getting reimbursed for making a donation. Anyone following Alberta news will know of the multimillion dollar inquiry into political contributions!

    This US situation has similar overtones – the receipting charity needs to provide assurances that the donor isn’t doing something or getting something to put the charity offside.

    DONATION might be trying to provide a solution to a moving target. Government legislation and interpretations of same seem to be forever changing. My fear is that if DONATION doesn’t get it right, they themselves are a target for a civil law suit. Well intentioned as they are, Software4NonProfits doesn’t need this worry!

    In the Alberta, Canada context the solution now resides in the disclaimers provided by the Charity to the donor with the donor making an agreement with the charity PRIOR to making the donation. In the generic US situation the disclaimer might read something similar to the following:

    “Church XYZ is a registered charity and provides receipts for donations made to the Church in compliance with section 123 of the Income tax Act.”

    The interpretation of the ACT is not DONATION’s problem and as mentioned earlier since wordsmithing explanations can be problematic, DONATION is shifting responsiblity back to the Charity where it belongs. If there is something in the ACT that MUST be included on the receipts, the language used should be those precise prescribed words and not a third party interpretation of same.

    Just looking out for Dan in this case.

    • Upon looking through the interpretation bulletin from IRS it appears that their greatest concerns are related to non-cash items. I see reference to receipting gifts in kind in addition to the transfer of non-cash goods (or services?) to the donor.

      DONATION does not track anything to do with a charities objects, that is, what goods or services it might render to their audience. DONATION should clearly steer clear of any disclaimers or make any representations in this regard.

      The issue of receipting Gifts in Kind has been a challenge for many charities. In our church we solve that problem by an exchange of cheques. For example the church receives a donation of a Piano. The donor or church gets an appraisal of the value of the Piano (new is easier than valuing a used piano). The church really doesn’t care if the value is inflated by a few percent. The church purchaes the piano for the appraised price and the purchase is acknowledged in the bill of sale. The donor deposits the cash in the bank to demonstrate in the bank records (Government Audit right!) that the piano was sold. Another cheque is given to the charity and appropriately receipted using DONATION.

    • Gord, I appreciate your concerns about this, but the issue that came up in the court case was clearly about regular cash gifts, and the IRS rules on this seem quite clear.

      I have had the current disclaimer in my U.S. receipts just about forever, with no problems. And from various write-ups about it, it seems very clear that adding any sensible wording such as “except for intangible religious benefits” makes the potential problem of the donation being disallowed as a tax deduction go away.

      So I’m sending an email to all U.S. users about this today, and working hard on a set of fixes that allows a user to indicate whether they need that added wording (i.e. whether they are a religous body like a church) and then have that wording added more or less automatically.

      I really don’t think I have any choice in this matter, and while I could let users make their own changes if they are using the mail-merge version of the receipts, I am the only one that can make changes to the normal built-in version.

  4. Pingback: DONATION Receipts and “Intangible Religious Benefits” Fixes « Software4Nonprofits Blog

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