For several years now, the IRS has been working to crack down on fraudulent deductions for charitable contributions. IRC §170(f)(8)(A) requires taxpayers to obtain contemporaneous written acknowledgment from a charity in order to claim donations of $250 or more. IRS field agents have reported that under audit, many taxpayers claim they’ve lost receipts supporting those donations. Recently, the IRS proposed a new option: allowing certain nonprofit organizations, including churches, to collect social security numbers from donors making cash donations of more than $250. Rather than issuing receipts to each donor, those organizations would be able to file a single informational return with the IRS by February 28 of each year. The report would include names, social security numbers, and donation amounts. Many charities are pushing back against the proposal.
Anyone concerned with identity theft issues can tell you that one of the first ways to prevent falling victim to identity theft is closely guarding your social security number. Many companies gather all sorts of information, including social security numbers, when that information is not necessarily required or serving a purpose. Once you give out your social security number, your identity is only as secure as the weakest link in the chain. Will your personal information be guarded in an encrypted file, or printed on a sheet of paper that is tossed into a trash can or stolen from an unlocked filing cabinet?
The IRS itself has not proved to be the most trustworthy guardian of taxpayer information. In May 2015, the IRS disclosed a security breach of their transcript delivery system exposed the personal information, including social security numbers and prior year return data, of more than 100,000 taxpayers. That estimate was later expanded to more than 334,000 potential victims.
While the proposal is currently being touted as optional, it’s not difficult to envision the informational return becoming mandatory within a short period of time. At some point, donee organizations may be required to report donations to the IRS so the IRS can use matching software to ensure taxpayers are not claiming fraudulent cash donations, much like the IRS’s current system for matching mortgage interest deductions using Form 1098 issued by banks.
Nonprofit organizations are pushing back against the proposal, fearing fewer donations from donors concerned about divulging social security numbers and increased security requirements for their own systems to prevent donor information from being leaked.
The IRS is accepting public comment on the change through 12/16/15.
By Janet Berry-Johnson