receipting | NFP Audit and Accounting

Will that be paper, plastic or … a text message?

Charitable donations now come in all shapes and sizes. It used to be a donor would mail a check for their charitable contribution – a check which included their name and address. This method made issuing a charitable receipt fairly straightforward. As credit and debit cards became the normal payment method for many people, non-profit organizations moved with the times to begin accepting plastic in lieu of paper checks. Credit transactions added a new layer of complexity to charitable receipting. For example, a credit card may be rejected, or it may not be processed by the merchant bank on the same day it was given by the donor. When the dates differ, which day is the date of donation – the day the donor input the donation online or the day the merchant bank processed it? For a donor giving $10,000 on December 31, the answer has a big impact on their tax liability.

Because the IRS has experience monitoring and auditing credit card donations, guidance exists for many issues related to contributions made by credit card. Based on the guidance I have seen, I understand a credit card contribution to be made when the cardholder becomes indebted to a third party (the bank) and cannot prevent the charitable organization from receiving payment. On that date, a gift is made. As the nuances with credit card transactions become old hat, new payment methods keep charities, their donors and the IRS on their toes.

A new mechanism for giving has been on the rise for a few years, but it wasn’t until the recent tragedy in Haiti that mobile giving exploded as a viable option for many donors, including the younger population.

One of the challenges with mobile text message giving, also known as an SMS donation, is the lack of donor information received by the charity of record. While donors may appreciate the ease in giving because they do not have to provide credit card or address information, it limits a charity’s ability to issue a charitable receipt directly to the donor. In the wake of the large surge in text giving during January 2010, the IRS issued a special notice related to Haiti donations which defined the form of record keeping acceptable for a donor to have a valid taxable receipt for a text message. The IRS has also informally said a phone bill may be used as written documentation for other charitable contributions outside of those donations made for Haiti relief.

Although Publication 526 , the IRS’s annual publication on how to claim charitable contributions, clearly documents the recordkeeping required for cash and payroll contributions, it does not yet permanently incorporate the record keeping requirement for new forms of giving available through media outlets, like text messages. We’ll have to stay tuned for whether new types of payment methods will be included in the 2010 Publication 526. The surge of new forms of giving may warrant an updated description of recordkeeping requirements. In the meantime, monitoring special publications like 1396 helps a charity ensure they are providing the best donor experience from gift to tax deduction.