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an acknowledgment letter will be required in order for your donors to use the charitable deduction for their donations (assuming the donations exceed $250). Donations made prior to the organization receiving 501(c)(3) status should retroactively qualify for the charitable deduction if and when 501(c)(3) status is approved Your main question regarding how to handle the donation acknowledgment letter requires an explanation.
Per Internal Revenue Service (“IRS”) rules summarized in Publication 1771, one of the requirements of an acknowledgment letter is that it must be “contemporaneous.” This means that the organization should not wait until 501(c)(3) status has been approved to send the acknowledgment letters. Most 501(c)(3) organizations send acknowledgment letters no later than January 31 of the year following the year of the donation (and many send acknowledgment letters promptly after receiving each donation in alignment with donor management best practices). In all cases, acknowledgment letters must be sent no later than the date the donor files his or her federal income tax return (or, if earlier, the due date of the return, including extensions).
This leads to the tricky part. A nonprofit must not misrepresent its tax status while is awaiting approval of its Form 1023 application (in an acknowledgement letter or otherwise). Thus, acknowledgement letters for donations received prior to approval of 501(c)(3) status will be different.
Go ahead and include the date and amount of the contribution, and (if true) a statement that no goods or services were provided in exchange for the contribution (refer to Pub. 1771 for situations where donors do receive goods or services). But instead of stating that the organization is a 501(c)(3) public charity, note that the organization has recently submitted an application for 501(c)(3) public charity status (retroactive to its date of formation) and that its 501(c)(3) status is currently “pending” and awaiting approval from the IRS.
I also recommend noting in the initial acknowledgment letter that the organization will follow up to inform the donor whether or not 501(c)(3) public charity status has been approved.
