IRS Withdraws Controversial Prop Reg Allowing Nonprofits to Collect Donor SSNs.

(Parker Tax Publishing January 18, 2016)

A proposed regulation under Code Sec. 170(f)(8) that would give charitable organizations the option of reporting information to the IRS on donor's who contributed $250 or more during the year, including the donor's social security numbers, has been withdrawn. REG-138344-13.

Last year, the IRS issued Prop. Reg. 1.170A-13(f)(18) (REG-138344-13 (9/17/15)). The proposed regulation was aimed at implementing an exception to the contemporaneous written acknowledgement (CWA) requirement for substantiating charitable contribution deductions of $250 or more.

Code Sec. 170(f)(8) requires the substantiation of charitable contributions of $250 or more and Reg. Sec. 1.170A-13(f) provides rules on substantiating charitable contributions of $250 or more. Generally, a taxpayer who claims a charitable contribution deduction for any contribution of $250 or more must obtain substantiation in the form of a CWA from the donee organization. While the CWA need not be in any particular form, Code Sec. 170A(f)(8)(B) provides that it must contain the following information:

(1) the amount of cash and a description of any property other than cash contributed;

(2) whether any goods and services were provided by the donee organization in consideration for the contribution; and

(3) a description and good faith estimate of the value of any goods and services provided by the donee organization or a statement that such goods and services consist solely of intangible religious benefits.

The CWA must also be contemporaneous. A CWA is contemporaneous if it is obtained by the taxpayer on or before the earlier of the date the taxpayer files an original return for the tax year in which the contribution was made or the due date (including extensions) for filing the taxpayer's original return for that year.

Code Sec. 170(f)(8)(D) provides an exception to the CWA requirement. Under the exception, a CWA is not required if the donee organization files a return that includes the information described in Code Sec. 170(f)(8)(B).

The proposed regulations immediately caused an uproar because they proposed to give donee organizations the option of "donee reporting." This would involve the charitable organization reporting to the IRS the information required in Code Sec. 170A(f)(8)(B), as well as the donor's name, address, and taxpayer identification number. Thus, the charitable organization would have to have a means to store, maintain, and readily retrieve the return information for a specific taxpayer if and when substantiation was required in the course of an examination.

The uproar over the regulations centered on the fact that it allowed charitable organizations to collect the social security numbers of those who donate $250 or more per year. For example, former U.S. congressman, Ron Paul, objected to the collection of social security numbers because "it is quite possible that a future IRS may, by making a simple one-word change in the IRS's regulations, force 501(c)(3)'s to give the IRS the social security numbers of their major donors. It is ironic that the IRS is considering this rule the same week that the Office of Personal Management (OPM) finally finished notifying the 40 million Americans whose personal information may have been comprised when OPM's records were hacked this summer. The OPM hack is just the latest example of government's failure to protect personal information."

The IRS has now withdrawn the proposed regulation.

For a discussion of the substantiation rules for charitable contributions of $250 or more, see Parker Tax ¶84,190. (Staff Editor Parker Tax Publishing)

Disclaimer: This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer. The information contained herein is general in nature and based on authorities that are subject to change. Parker Tax Publishing guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. Parker Tax Publishing assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein.

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