Recently, the IRS offered a new proposal for substantiating charitable donations. Right now, charities can simply send an appropriate letter thanking the donor for the gift, or offer a receipt for the gift (especially important for donations of goods).
However, in some cases donors may forget to ask for a receipt, or may not receive a letter. In order to boost substantiation, the IRS is proposing that charities collect and store Social Security numbers from donors for contributions of $250 or more and issue a special information return.
The result of this proposal has been negative outcry from donors and charities alike.
Burdens on Charitable Organizations
First of all, according to a position paper from the National Council of Nonprofits, this new requirement would place an extra burden on charitable organizations. Being required to collect extra information and file additional returns would add to expense and work. Basically, this proposal would create a parallel reporting system, doubling the work done by charities and increasing their expenses.
These burdens would cut into the actual charitable work done by organizations, and reduce the efficiency of use of donated funds and goods. For the most part, the current system works well. While there are some problems, and a few donations fall through the cracks, the reality is that even the Treasury Department acknowledges that the current system is mostly effective and offers minimum burdens for everyone involved. As a result, taxpayers and nonprofits alike are scratching their heads at why the IRS would want to add more burdens to charities.
The Problems of Asking for Social Security Numbers
One of the biggest problems with the IRS proposal, though, is the requirement to collect and store Social Security numbers. Right now, donors don’t have to share their personal information to donate. However, if the IRS proposal goes through, charities would have to start asking for Social Security numbers, and issue special paperwork for contributions of more than $250.
Not only is this more work, but it presents security problems as well. Many people are already wary of where they give out their personal information. The increased frequency of data breaches is also an issue. Many donors would be worried about giving out a Social Security number. Not only that, but it also means that charities would be burdened with even more requirements as they work to secure the information and safeguard the process.
The most likely outcome of a scenario that requires donors to give out Social Security information is a dramatic drop in donations. The National Council of Nonprofits points out that donations would be reduced because consumers just don’t want to give out that sensitive information.
There are already concerns that charity can’t provide adequate aid to the poor without social welfare programs. If the IRS proposal is put into place and donations drop, the gap would be even bigger. Requiring Social Security numbers would mean fewer donations, and it would increase costs to charities. For some, it might even mean the end of the ability to keep providing services.