Providing assurance for tax deductible contributions

For a contribution or donation to be tax deductible, your donors need the assurance that your organization is in good charitable standing with the IRS at the time of the donation. While most donors don’t bother to make sure their donation qualifies them to take a deduction on their tax return, failure to take this step may very well mean the IRS disallows their contribution deduction in the case your organization is not eligible to accept deductible contributions.  When this happens, penalties and interest will be added to any underpayment of tax. Because of the recent revocation of tax-exempt status for many organizations, donors may now be encouraged to be more vigilant.  It is the donor’s responsibility to ensure their donation is actually deductible.

The IRS publishes tax exempt status in two locations:

–         Publication 78 – list of organizations that have a ruling or determination of tax-exempt status

–         IRS Business Master File (BMF) – list of organizations with more detail than Publication 78

However, sometimes tax exempt status is lost between publication updates, and the IRS uses an Internal Revenue Bulletin or the IRS Web site for notification purposes.

A third party, such as an accounting firm, can provide verification of an organization’s tax exempt status with just the name of the organization, city and state.

If you lose tax-exempt status for any reason, it’s important that you let your donors know that their contribution will not be tax deductible until tax exempt status is regained. Such notification is proactive on your part, and will communicate integrity to the donor so that they are more likely to donate again in the future.  However, the best way to maintain integrity and keep those donations rolling in is to keep your exempt status current!