The benefits of a Contemporaneous Written Acknowledgment (CWA) are primarily related to the substantiation of charitable contributions for federal income tax purposes. Here are the key benefits:
- Tax Deduction Eligibility:
- A CWA is essential for a donor to claim a federal income tax deduction for any single contribution valued at $250 or more. Without a CWA, the donor cannot claim the deduction, regardless of the actual contribution made.
- Compliance with IRS Requirements:
- The CWA ensures compliance with the strict substantiation requirements under section 170(f)(8)(A) of the Internal Revenue Code. This compliance is necessary to avoid the disallowance of the charitable deduction.
- Avoidance of Penalties:
- Proper documentation through a CWA helps avoid potential penalties related to inaccuracies in tax filings. For instance, failing to meet the substantiation requirements can lead to accuracy-related penalties under § 6662, which apply to underpayments of tax due to negligence or substantial understatement of income tax.
- Clear Record of Contributions:
- A CWA provides a clear and reliable record of the contributions made, including the amount of cash and a description of any non-cash property donated. This documentation is crucial for both the donor and the IRS to verify the legitimacy of the claimed deductions.
- Detailed Information on Goods or Services Received:
- The CWA must state whether the donee organization provided any goods or services in exchange for the contribution. If goods or services were provided, the CWA must include a description and a good faith estimate of their value. This information is necessary to determine the allowable deduction, which is the fair market value of the contribution minus the value of any goods or services received.
- Flexibility in Form:
- A CWA can take various forms, such as a letter, postcard, or computer-generated form, and can even be a series of documents that collectively meet the requirements. This flexibility makes it easier for donors and donee organizations to comply with the substantiation requirements.
- Timeliness:
- For the acknowledgment to be considered contemporaneous, it must be received by the donor on or before the earlier of the date the donor files their tax return for the year of the contribution or the due date (including extensions) of such return. This timely acknowledgment ensures that the donor has the necessary documentation when filing their tax return.
- Special Provisions for Intangible Religious Benefits:
- If the donee organization provides only intangible religious benefits, the CWA does not need to describe or value those benefits. It can simply state that intangible religious benefits were provided, simplifying the documentation process for religious charitable contributions.
In summary, a CWA is a critical document for substantiating charitable contributions, ensuring compliance with IRS requirements, avoiding penalties, and providing a clear and reliable record of donations. It allows donors to claim the appropriate tax deductions and provides necessary details about any goods or services received in exchange for contributions.
Sources:
15 West 17th Street LLC, et al. v. Commissioner, 147 T.C. No. 19
Publication 1771 (11/2023)
ECC 201002038
§ 170. Charitable, etc., contributions and gifts
CCA 202020002
Substantiate Your Charitable Deductions
Does a Deed Qualify as a Contemporaneous Written Acknowledgment?
