The importance of acknowledging your donors’ charitable contributions
Based on our experience, most nonprofits receive a significant portion of their charitable contributions in the last several months of the year. Shortly thereafter, the related donors are looking for opportunities to take advantage of those charitable contributions when preparing their corporate or personal income tax returns. Therefore, nonprofits should make it a priority to have timely and accurate acknowledgements to those donors early in the new year, at the latest, that comply with the requirements of the Internal Revenue Service (“IRS”). These acknowledgements can be used for both compliance and to build stronger donor relationships.
What is contemporaneous written acknowledgement?
For tax reporting purposes, donors must substantiate all charitable contributions with allowable evidence. For smaller charitable contributions, evidence can be in the form of bank records, such as bank statements, cancelled checks, or credit card statements. When the contribution amount is $250 or more, donors must obtain a contemporaneous written acknowledgment (“CWA”) from the nonprofit by the earlier of (1) the due date, including extensions, of the donor’s income tax return; or (2) the date the return is filed.
At a minimum, a CWA is a written statement provided by a nonprofit organization to a donor, acknowledging the receipt of a charitable contribution. According to IRS regulations, this acknowledgement is essential for donors to claim a tax deduction for their charitable contribution. As long as the CWA includes the key elements, it can be prepared in a way that communicates more to the donor such as how the donor’s charitable contribution was used, the impact that it had, and/or how the nonprofit plans to expand its reach to build upon its mission.
Key elements of a contemporaneous written acknowledgement
To ensure compliance with IRS regulations, a CWA must include the following elements:
- Name of the Organization: Clearly state the name of your nonprofit organization.
- Amount of Cash Contribution: Specify the exact amount of any cash donation.
- Description of Non-Cash Contributions: Provide a detailed description of any non-cash contributions, but do not assign a value to these items.
- Statement of No Goods or Services Provided: If no goods or services were provided in exchange for the donation, include a statement to that effect.
- Description and Good Faith Estimate of Goods or Services Provided: If goods or services were provided in exchange for the donation, include a description and a good faith estimate of their value.
- Statement of Intangible Religious Benefits: If the donation was in exchange for intangible religious benefits, include a statement to that effect.
Why is CWA important?
In addition to complying with IRS regulations, providing a CWA is also about building trust with your donors. When donors receive a timely and accurate acknowledgement of their contributions, it reinforces their confidence in your organization and encourages future donations. The CWA can be used to enhance a donor’s overall giving experience.
Best practices for issuing CWA
To ensure your nonprofit is effectively issuing CWAs, consider the following best practices:
- Timeliness: Send acknowledgements as soon as possible after receiving a donation. There is no need to wait until the nonprofit’s yearend.
- Accuracy: Double-check all information to ensure accuracy and completeness.
- Personalization: Whenever possible, personalize acknowledgements to make donors feel valued and appreciated. Again, use the CWA as another way to enhance the donor’s overall giving experience.
- Record Keeping: Maintain detailed records of all acknowledgements issued for future reference and compliance purposes.
Conclusion
Maintaining compliance with all rules and regulations is essential for a nonprofit organization to maintain the public’s trust. In addition, fostering and expanding relationships with current and prospective donors is one of the most important administrative aspects of operating a nonprofit organization. Every communication with a donor should be intended to further build or strengthen the relationship and providing CWAs is no different. By understanding and implementing the requirements for CWAs, your nonprofit organization can enhance donor trust, ensure regulatory compliance, and foster a positive giving experience.
Questions on CWA for your nonprofit organization? Consult your Keiter Opportunity Advisor.
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