Sending a donor thank-you letter or acknowledgment makes your donors feel valued and builds a lasting relationship. Your donors believe in your organization’s mission, which is evident by their gift, so it is important to acknowledge their contribution appropriately. Additionally, it is a best practice for nonprofits to provide a written acknowledgment to donors so that they comply with the requirements for deducting charitable contributions on their tax returns. However, many may not fully understand the specific requirements nonprofits must follow in issuing these acknowledgments.

According to IRS Publication 1771,  a donor cannot claim a federal income tax deduction for any single contribution valued at $250 or more unless the donor obtains a contemporaneous written acknowledgment of the contribution from the nonprofit charitable organization.

Notice there is no requirement for the nonprofit organization to issue this donor acknowledgment. In fact, nonprofits are not penalized if they fail to acknowledge donations. This means it is the donor’s ultimate responsibility to acquire the written acknowledgment. However, you want to make your donor’s experience with your organization hassle-free, so they are more likely to make future contributions.

A written acknowledgment must contain:

1. The name of your organization
2. The amount of the monetary contribution
3. A description (not the fair market value) of any property you received
4. A statement that no goods or services were provided by your organization in return
5. If goods or services were provided to the donor, a description and fair market value of the goods or services
6. If the nonprofit provided intangible religious benefits in return for the contribution, a statement should be provided.

You do not have to include the donor’s social security number or tax identification number, nor do you have to provide the value of any non-monetary donations. If your organization provides items of insubstantial value (token) to your donors in exchange for their gift, you should consult IRS Publication 1771 for additional guidance.

Quid Pro Quo Contributions

When your nonprofit organization provides goods or services to your donors in exchange for their donation, you have what is called a quid pro quo contribution. In this situation, your organization must provide a written statement to your donor if they make a payment to your organization of $75 or more.

IRS Publication 1771 states that, “The statement must be in writing and must be made in a manner that is likely to come to the attention of the donor.” This statement is not required if you provide a token gift as noted above.

Your acknowledgment must contain:

1. A statement informing the donor that the amount of their contribution that is deductible for federal income tax purposes is limited to the excess of their amount contributed over the value of the goods and services provided by your organization.
2. A good faith estimate of the fair market value of such goods and services provided to the donor.

Following is an example of a quid pro quo contribution from IRS Publication 1771:

“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.”

If your organization has any questions about how to handle acknowledging the donations you receive, reach out to your HBE trusted advisor and we will be happy to assist you in making sure your organization stays in compliance with applicable regulations.