5 Items to Include in Donor Acknowledgment Letters – What to include for tax purposes?

how to thank nonprofit donorsWhat is a donor acknowledgment letter?

A donor acknowledgment letter is more than just a “thank you” letter. Nonprofits have certain requirements to follow — including providing donors with a donation “receipt” — often called an acknowledgment letter.

Donors giving more than $250 in a single contribution to a nonprofit organization need a written acknowledgment from a nonprofit to claim that deduction on their individual income tax return.

Does it have to be in a certain format?

Proper written acknowledgments can include many forms — letters, e-mails, or postcards. There is no official IRS form that the nonprofit organization has to complete.

When does the nonprofit need to send the written acknowledgment letter to donors?

The IRS sets out that acknowledgments must be provided “in writing, at the time of solicitation or when the payment is received, and in a way that will come to the attention of the donor,” according to IRS Publication 1771.

For the letter to be considered “contemporaneous” with the contribution, “a donor must receive the acknowledgment by the earlier of: the date on which the donor actually files his or her individual income tax return for the year of the contribution; or the due date (including extensions) of the return.” IRS Publication 1771.

Generally, most nonprofits provide written acknowledgment by January 31 of the year following the receipt of the contribution.

We advise that nonprofits provide written acknowledgment to donors in a timely manner — as close to the receipt of the gift as possible. We believe that expressions of thanks are like pancakes – they need to be served right away!

What needs to be included in donor acknowledgment letters?

Again, the IRS requires that a tax-exempt organization send a formal acknowledgment letter for any donation that is more than $250. The donor will use this letter as proof of his or her donation to claim a tax deduction.

The acknowledgment to the donor should include the following:

      1. Tax-exempt status statement: Statement that the organization is a 501c3 tax-exempt organization. Include the nonprofit’s EIN in case the donor wants to check the charity’s tax-exempt status.
      2. Name of the organization (the charity) and name of the donor
      3. Date of the contribution: The date the donation was received.
      4. Contribution Details
        • For cash (checks, credit card, payroll deduction): The amount of the contribution that was received.
        • For non-cash gifts: A description (but not the value) of the non-cash contribution.
      5. Statements – Good Faith Estimates of Value of Goods or Services. Ask: Did the donor receive any goods or services in exchange for the gift?
          • Include a statement that no goods or services were provided by the organization in exchange for the contribution, if that was the case.
          • If any goods or services were provided by the organization in exchange for the contribution, include a description and good faith estimate of the value of those goods or services. (Example: A fundraising dinner event where some of the funds received from the donor pays for the actual dinner, while the rest is a donation.)
          • If the goods or services that were provided to the donor were insubstantial token amounts, note that, too. (Example: When a small gift is given to the donor with the nonprofit organization’s name or logo on it like a bumper sticker, coffee mug. See below.) Or, provide a statement that goods or services (if any) that the nonprofit provided in return for the contribution consisted entirely of intangible religious benefits, if that was the case .

Some Examples

Cash donation:

“Thank you for your contribution of (insert amount of cash donation) on Date. No goods or services were provided in exchange for this contribution. Name of NP is an exempt organization as described in Section 501(c)(3) of the Internal Revenue Code; EIN ##.”

You can make this a fun, too! I also like seeing something tied to the nonprofit organization in the required language:

Thank you for your contribution of (insert amount of cash donation) on Date. .  . No benefit was bestowed upon this donor in exchange for this contribution...other than the joy of giving to an organization that supports programs for Texas children with special needs. We are an exempt organization as described in Section 501(c)(3) of the Internal Revenue Code; EIN ##.”

For a non-cash item:
“Thank you for your contribution of one used table and set of six oak chairs that NP received on Date. No goods or services were provided in exchange for your contribution.”

Why does this matter?

The IRS has denied tax deductions to donors who did not have the proper acknowledgment from nonprofits. Two recent Tax Court cases outline the importance of nonprofits following the letter of the law. (Read: Chronicle of Philanthropy’s article: “IRS Crackdown Puts Focus on Gift Records“). Help make this easy for your donors.

Key Question: Is the Donor Receiving Something in Return for His or Her Donation?

When a tax-exempt entity provides a good or service in exchange for a donation of more than $75, the nonprofit has to (1) provide the donor with written notice of the fair market value of those goods or services received and (2) tell the donor that only a portion of the donation that exceeds the fair market value is tax-deductible.

The nonprofit will make a good faith estimate of the fair market value of the item or service and inform the donor. Generally, the nonprofit’s good faith estimate of the value of goods and services will be treated as the fair market value, and the donor can rely on that estimate (unless the donor knows that estimate is unreasonable).

What else should be included?

Help the donor understand how their valued gift was used. We advise our clients to share more than just the donation tax language.
      • Tell the donor how the organization used their donation. What did it help the organization accomplish? How many clients did it serve? What good did you do with the gift?
      • Let donors know what goals your group accomplished and what objectives you are working towards.
      • Keep your donors engaged by letting them know about the work your organization is doing today. Invite them to participate in volunteer events. Use regular reports to share your progress through statistics that show how their money is being spent.
      • Include personal stories and quotes from staff, volunteers, or clients.

Learn More

IRS Publication 1771: Charitable Contributions – Substantiation and Disclosure Requirements

Donor Stewardship

IRS Offers Tax Tips for “The Season of Giving”

Comments

  1. Cortez Riley says

    Hello Attorney Cullilnane,

    Thanks so much for this. Can you please let me know if the following draft of a donation acknowledgement letters is sufficient? Should I make any additions or subtractions?

    President Denise Fale
    Saint Cloud Branch # 4054
    P.O. Box 7042
    Saint Cloud, MN 56302-7042

    January 19, 2015

    Dear [Name of Performer/Business/Etc],

    We would like to thank you for your donation of $250.00 to the Saint Cloud NAACP, in the form of your exceptional musical performance. The Saint Cloud NAACP is a 501(c)(3) tax-exempt organization. The donation was received at the following event:

    2015 Rev. Dr. Martin Luther King, Jr. Freedom Fund Banquet
    Sunday, January 18, 2015
    6pm-8pm
    River’s Edge Convention Center
    10 4th Ave South
    Saint Cloud, MN 56301

    In exchange for services rendered, [Name of Performer/Business/Etc] received a $50.00 ticket to the banquet.

    For questions, please contact President Denise Fale at (320) 259-4010 or stcloudnaacpunit4054naacp.org.

    Sincerely,

    Denise Fale
    President
    Saint Cloud Branch #4054

    • says

      Hello Denise – You may consider editing this letter. Generally, an organization does not place a monetary value on services performed — in your letter you gave the ‘musical performance’ a cash value of $250. Also, you’ll want to include the EIN number so donors can verify that tax-exempt status is in place. I hope that helps! -Mollie

  2. Erica C says

    I work for a small not for profit. I sent out letters to everyone at year-end thanking them for donations of $250 or greater during 2014, as I started working for the organization midyear. This current year, I was considering sending them out quarterly. If I do this, do I also have to send out a year-end letter or, if they make multiple donations during the year, do I thank them for the newest donations or a cumulative total so that all their donations are on one page?

    • says

      Hello Erica – It sounds like you are doing a great job getting donors what they need. Your organization can handle the donations either way. It can be difficult for smaller organizations to send so many letters – but donors really need recognition for their gifts. If possible, I would encourage you to add on the final year-end summary of gifts to that last quarter letter.

  3. says

    If a sponsors pays their annual sponsorship fee, that is over $250, let’s say in June do we have to send a separate letter of donation at that time or is it alright to just include that amt. in the year end tax letter?

    What is the official date that an NFP must have the tax letters out?

    Thanks for your help.
    Darlene

  4. says

    Mollie,

    I just found your article while doing some related research. Your last section, “What else should be included”, is spot on. Every nonprofit I have spoken with I take time to express the value of this particular communication piece. In fact, it is mission critical for nonprofits to do so. Lack of understanding in what their giving accomplishes can become a significant frustration and barrier for businesses. My business clients mandate this information for ongoing support.

    Have a wonderful day!

    Dan

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