CEI Comments to IRS on Substantiation Requirements

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"On behalf of the Competitive Enterprise Institute (CEI), we respectfully submit these comments in response to the Internal Revenue Service’s notice of proposed rulemaking concerning the time and manner for charitable organizations to file information returns on their contributions. CEI is a nonprofit public interest organization dedicated to the principles of limited constitutional government and free enterprise.

The Internal Revenue Code (IRC) generally permits a taxpayer to deduct from her income a charitable contribution of $250 or more only if “the taxpayer substantiates the contribution by a contemporaneous written acknowledgment of the contribution by the donee organization.” For such an acknowledgment to effectively substantiate the contribution, it must contain certain details about the taxpayer’s donation. But the IRC provides an exception to this general rule: a taxpayer need not obtain a contemporaneous written acknowledgment if the “donee organization files a return” in accordance with IRS rules that includes the same information that is otherwise required of a written acknowledgment.

To date, however, the IRS has not issued any rules governing how a “donee organization” may report a taxpayer’s contribution in lieu of furnishing the taxpayer a contemporaneous written acknowledgment of her donation.

Indeed, the IRS has “specifically declined” to issue such regulations, asserting that the “present … system works effectively, with minimal burden on donors and donees.”

In other words, although Congress provided an alternative statutory means for taxpayers to substantiate charitable contributions in lieu of the contemporaneous written acknowledgment, IRS regulations have precluded taxpayers or donee organizations from availing themselves of this option."

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