The IRS recently released 7 new FAQs about Issues of Interest to the General Public about Exempt Organizations. I found one particular answer not too helpful:
Are contributions to an organization that that has not received an exemption determination letter deductible (for example, while an application is pending)?
"If an organization is exempt under section 501(c)(3) of the Internal Revenue Code, charitable contributions to it are deductible. To be exempt under section 501(c)(3), most organizations must file Form 1023 by the end of the 27th month after they were created. If an organization does so, charitable contributions to it will be deductible back to the date of formation. The extent to which donors may be assured that their contributions will be deductible in advance, however, will depend on whether the organization has –
- Timely filed Form 1023, Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code, but not yet received a letter recognizing its exempt status,
- Filed Form 1023 later than the prescribed time, or
- Not filed form 1023."
So what’s wrong with that answer?
First, it doesn’t address the possibility that the organization is denied 501(c)(3) status. This makes it impossible for donors to know in advance of the organization’s receipt of its IRS determination whether their contributions are deductible. Does this make it improper for a donor to take a charitable deduction in advance of the determination so long as the organization timely filed Form 1023? From the information on the FAQ, it would appear not, provided that the donor amends his or her return if the organization is denied 501(c)(3) status after the donor’s tax return has been filed. On the other hand, taking the deduction before an IRS determination may be improper reliance on the organization’s ability to meet all the eligility requirements for an organization to receive deductible contributions. This conflict is where guidance is needed.
Second, the first sentence in the answer is not exactly correct and may be misleading. Not all organizations exempt under 501(c)(3) are eligible to receive deductible contributions. For example, a charitable contribution to a foreign organization which has received 501(c)(3) status from the IRS is not deductible. IRC Section 501(c)(3) describes a type of organization exempt from taxes under IRC Section 501(a) and does not speak to the deductibility of contributions. It is IRC Section 170 that provides for the deductibility of charitable contributions, and 170(c) describes the types of organizations eligible to receive deductible charitable contributions.
Third, even if the organization is eligible to receive contributions subject to the charitable deduction, the charitable contribution will not be eligible for a charitable deduction unless properly substantiated (i.e., documented by a bank record or an appropriate written communication by the donee organization) and within certain percentage limitations, as provided in IRC 170(b).
Click here for the new IRS FAQs.