Requirements and Best Practices – Organizational Gift Substantiation

by George Rattin, Associate Vice President, HUB Philanthropic Solutions

As consultants, we speak often about “best practices.”  Those are the habits and behaviors that individuals and organizations should undertake to provide the highest quality and levels of service.  However, best practices are not requirements (typically).  Though many best practices are driven to ensure we do the best for our organizations as well as the donors who support them, they are simply conventions that allow organizations to be the most effective.  Over the next month or so, I will take a look at the requirements that reside behind best practices.  Today, I look at organizational requirements for gift substantiation.

IRS Publication 1771 provides an explanation of the requirements of Charitable Contribution substantiation.  The IRS imposes record keeping and substantiation rules of charitable contributions and disclosure rules on charities that receive certain quid pro quo contributions:

  • Donors must have a bank record or written communication from a charity for any monetary contribution before the donors can claim a charitable contribution on their federal income tax returns. „
  • Donors are responsible for obtaining a written acknowledgment from a charity for any single contribution of $250 or more before the donors can claim a charitable contribution on their federal income tax returns. „
  • Charitable organizations are required to provide a written disclosure to a donor who receives goods or services in exchange for a single payment in excess of $75

Though there are many best practices that would direct an organization to provide a gift acknowledgement in timely manner, the IRS does not impose a penalty on organizations that do not.  They instead say it is the donor’s responsibility to seek out the required documentation for gifts over $250.  However, if an organizations fails to provide written substantiation of a quid pro quo payment, the IRS can impose a penalty of $10/contribution, not to exceed $5,000 per fundraising event or mailing.

Example of a quid pro quo contribution: A donor gives a charitable organization $100 in exchange for a concert ticket with a fair market value of $40. In this example, the donor’s tax deduction may not exceed $60. Because the donor’s payment (quid pro quo contribution) exceeds $75, the charitable organization must furnish a disclosure statement to the donor, even though the deductible amount doesn’t exceed $75.

As organizations look to build or revise policies and procedures it is essential to know what you are required to do.  However, rarely will requirements alone suffice to build and grow donor support.  Once you have a firm understanding of your requirements,  build procedures that support your donors and build loyalty.  What follows are a few best practices regarding organizational contribution gift acknowledgements:

  1. Provide donors with written gift acknowledgements that specify if any goods or services were received and if so, providing detail and value of said goods and services.
  2. Provide gift acknowledgements in a timely manner, typically within 48 hours (business) of when the gift was received.
  3. For donors who provide multiple gifts to your organization per year, provide a year-end summary outlining all gifts made within that year and provide that prior to April 15th of the following year.  The closer to year end, the better.



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