IRS Rules for Charitable Contribution Letters 

 

When donations start rolling in, it’s easy for nonprofits to focus on mission-driven work and put the paperwork aside. But when tax season hits, many organizations find themselves fielding requests for donation receipts and wondering what exactly the IRS expects. Contribution acknowledgements are not just a formality. They are a legal requirement that protects your organization and gives donors the documentation they need to claim deductions. 

When are Acknowledgement Letters Necessary? 

According to IRS Publication 1771, “a donor cannot claim a federal income tax deduction for any single contribution valued at $250 or more unless the donor obtains a contemporaneous written acknowledgment of the contribution from the donee charitable organization.” This means that donors who gave more than $250 in a single contribution to your organization in the calendar year require a letter of acknowledgement for their taxes. Of course, donors contributing less than $250 per transaction may still request acknowledgment letters and providing them is good donor stewardship. 

What Does a Compliant Letter of Acknowledgement Look Like? 

A letter of acknowledgement can be a receipt, physical letter, email or any other form of permanent communication. The letter of acknowledgement should include the following: 

  • The name of the 501(c)(3) organization 
  • The amount of monetary contribution 
  • A description (but not fair market value) of any contribution of property 
  • A statement noting that no goods or services were provided by the organization in return for the contribution, if that was the case 
  • If goods and services were provided, a description of the items provided and a good faith estimate of their fair market value 

When Donations Include Goods or Services 

Events like banquets or auctions create unique reporting needs. If a donor pays more than $75 for something that includes goods or services, you must issue a written disclosure. For example, if a gala ticket costs $150 but the meal is worth $40, the acknowledgement must note that only $110 is deductible. 

This disclosure is required even if the donation itself is under $250. Providing this information helps donors understand the deductible amount and keeps your organization compliant. 

How to Document Noncash Contributions 

Cash gifts are easy to value, but donations of property, land or stock are not. In these cases, your organization should describe the gift without assigning a dollar value. The donor is responsible for determining the fair market value for tax purposes. 

For example: “Thank you for your generous gift of 200 shares of ABC Corporation stock on June 1, 2025.” 

This method ensures accuracy while keeping your organization within IRS guidelines. 

When Should Acknowledgment Letters Be Sent?  

Timing is important. While acknowledgement letters can be provided in a variety of ways, some best practices exist. Typically, nonprofit organizations will either:  

  • prepare and send letters of acknowledgement shortly following the end of the calendar year (typically by Jan. 31), or 
  • prepare letters of acknowledgement immediately when a contribution of $250 or more is received. 

In some cases, nonprofit organizations will practice both of these methods based upon the circumstances.  

Contribution acknowledgements demonstrate professionalism and transparency. They show donors that your organization manages gifts responsibly and complies with IRS requirements. A well-crafted acknowledgement can strengthen trust and encourage future support. 

Need Help with Donor Acknowledgements?  

Contribution acknowledgement rules can be confusing, especially when donations include goods, services or noncash gifts. Adams Brown works with nonprofits to ensure accurate documentation and compliance with IRS standards. 

Our nonprofit accounting services can help you streamline acknowledgements, improve reporting systems and protect your organization’s financial integrity. Contact an Adams Brown advisor to discuss how we can help your team handle contribution tracking with confidence.