CWA requirements
IRC Section 170(f)(8) provides that no deduction is allowed for any charitable contribution of $250 or more unless the taxpayer substantiates the contribution by a CWA of the contribution by the donee organization. The CWA must include all of the following:
- The amount of cash and a description (but not value) of any property other than cash contributed
- Whether the donee organization provided any goods or services in consideration, in whole or in part, for the contribution
- A description and good faith estimate of the value of any goods or services received by the donor or, if such goods or services consist solely of intangible religious benefits, a statement to that effect
Under IRC Section 170(f)(8)(C), a written acknowledgment is considered contemporaneous if the taxpayer obtains the acknowledgment on or before the earlier of the date on which the taxpayer files a return for the taxable year in which the contribution was made, or the due date (including extensions) for filing such a return.
In practice, most donors making donations of $250 or more rely on the charitable organization to provide a CWA that complies with the requirements of IRC Section 170(f)(8). However, the burden is on the taxpayer to obtain the required documentation.
In addition to the general rules in IRC Section 170(f)(8), IRC Section 170(f)(18)(B) provides that a deduction for a contribution to a DAF will be allowed only if the taxpayer obtains a CWA (determined under rules similar to those in IRC Section 170(f)(8)(C)) from the DAF sponsoring organization and if such organization has exclusive legal control over the assets contributed.
Keefer decision
In Keefer, the taxpayers donated the partnership interest to the DAF on June 18, 2015. The taxpayers received a robust DAF information packet dated June 5, 2015, and signed the DAF packet on June 8, 2015. On Sept. 9, 2015, the taxpayers received an acknowledgment letter from the sponsoring organization stating that it received the donated property and that the donors did not receive anything in exchange. Though the taxpayers argued that the DAF packet in combination with the acknowledgment letters met the requirements for CWA under IRC Section 170(f)(8) and IRC Section 170(f)(18), the court disagreed.
The court stated that strict compliance, not substantial compliance, is required to meet the CWA requirements of IRC Section 170(f)(8) and IRC Section 170(f)(18). In holding for the government, the court found that the June 8, 2015, DAF packet standing alone was not a CWA because it did not legally obligate the taxpayers to make the donation.
The court also found that the DAF packet could not supplement the Sept. 9, 2015, acknowledgment letter and meet the CWA requirements because nothing in the acknowledgment letter incorporated by reference or otherwise referred to the DAF packet. Finally, the court concluded that although the acknowledgment letter satisfied the CWA requirements in IRC Section 170(f)(8), it did not meet the additional DAF requirements under IRC Section 170(f)(18) because it did not affirm the sponsoring organization’s exclusive legal control of the donated asset.
Looking ahead
Keefer is a reminder that donors have the burden to ensure that documentation provided by the sponsoring organization complies with both IRC Section 170(f)(8) and IRC Section 170(f)(18)(B). Failure to receive a CWA that strictly complies with both provisions could result in the denial of charitable deductions under IRC Section 170. In addition, Keefer focuses on the timing of a CWA and the importance of the donor ensuring that the post-donation acknowledgment includes all of the CWA requirements of IRC Section 170(f)(8) and IRC Section 170(f)(18) to avoid questions about which documents are determinative of whether the CWA requirements are satisfied.
Taxpayers that made contributions to a DAF during 2021 should provide the acknowledgment to their tax return preparer as soon as possible to evaluate whether they comply with IRC Section 170(f)(8) and IRC Section 170(f)(18)(B). Early evaluation of acknowledgment documentation will allow donors time to address any concerns.
