IRS's substantiation proposal not welcomed by charities

Non-profit organizations are supposed to have fewer procedural hassles and controversies with the Internal Revenue Service by virtue of their federal tax-exempt status, right? Not necessarily, according to a recent article.

Specifically, the article discussed new substantiation rules proposed by the IRS that would require charitable entities to collect and store their donors’ social security numbers. Under current law, charities generally issue a standard letter to donors to acknowledge receipt of monetary gifts. If the proposal becomes law, a charity might include private Social Security information in a filed “information return.”

The proposed IRS rules are presumably intended to create receipts to substantiate charitable tax deductions. That acknowledgement must be made for gifts over $250. However, many commentators responded unfavorably to the proposal, including a characterization of the rules as a kiss of death for charities. Other concerns included identity theft and fraud from having to collect the private information from donors.

Unfortunately, substantiation of deductions is often a burden in other contexts, as well. If a return has been flagged for an audit and an individual or business cannot produce or recreate its records, the IRS may attempt to deny certain deductions or adjust the return at issue. This is where a tax attorney can provide a buffer. 

With legal representation, a taxpayer does not have to answer IRS questions on the spot. Instead, those questions can be addressed to the taxpayer’s attorney. In fact, our law firm also has experience in forensic accounting. We can help taxpayers reconstruct their expenses, present that documentation in a logical way to the auditor, and perhaps resolve the audit even with incomplete receipts or records.

Source: Forbes, “Is IRS Donor Tax ID Proposal Kiss Of Death For Charities?” Ashlea Ebeling, Dec. 11, 2015

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