The Trouble With Texting Donations

One of the more remarkable offshoots of the Haiti earthquake response has been the rise in cellphone giving. Indeed, the Mobile Giving Foundation, the nonprofit which facilitates texted donations, estimates that as of Tuesday, between $25 million and $27 million had been donated to causes via texts. That number grows by the minute: At one point, Mobile Giving was processing 10,000 text messages per second.

Less noticed has been a question that eventually arises for many donors: How do you deduct a cellphone donation from your taxes? Even as the money pours in to help victims in Haiti, there is a fair amount of confusion here, largely because of the novelty of the approach. What’s more, with all the publicity surrounding cellphone donations, the questions are likely to multiply – not just with givers, but presumably with their accountants, too.

The big question is familiar to anyone who has ever sat with a pile of crumpled slips of paper as they hustle to meet the April 15 tax-filing deadline: Do I have a receipt? Typically, for donations to IRS-approved charities, whether made by mail, telephone or online, personal information is collected so the donor can expect to automatically receive, by hard copy or email, a receipt confirming their donation for tax purposes. That’s not the case with the new cellphone approach.

Since the charity is receiving the donation second hand — through the cell company and Mobile Giving — it doesn’t have the opportunity to collect a giver’s address or email. This gap of information has created some uncertainty.

When SmartMoney first asked the IRS how these donations are handled, a spokesman directed us to Publication 526, which spells out in general terms the guidelines for documenting charitable donations. But in that publication, there is no mention of donations made by cellphone. Subsequently, IRS spokesman Marvin Robert said that the taxpayer should simply retain his or her cellphone bill as a receipt. “If [donating to Haiti] involves making contributions by text messaging, [Americans] should be assured that the Internal Revenue Service will accept, as substantiation of the contribution, a copy of the telephone bill showing the text message charge,” he said in an email message.

That’s good news for donors, since the alternative is rather cumbersome. Typically, when a donor gives to a charity, the group automatically generates a receipt, either by email or through the postal system. Instead, with texted donations, a donor must proactively take a number of steps. It starts with going to the web site processing the payment -- for example, Mobile Giving or mGive.org. The donor then punches in his phone number and receives a text message containing a PIN code. Only after entering the PIN does the organization provide a receipt.

When we surveyed a few professional tax preparers to find out their advice on deducting cellphone donations, their advice seemed to be in line with the new IRS guidelines. “Presumably, the taxpayer’s itemized [phone] bill would show the texted donation – the charity and the amount – on the itemized charges,” says Jackie Perlman, senior tax analyst at the Tax Institute at H&R Block. Bob Meighan, a CPA and vice president at TurboTax, says that the IRS requires a bank record or a written communication from the charity that shows the name of the charity and the date and amount of the contribution. “In the case of donations via text messaging, the cellphone bill reflects the donation. This satisfies the requirement,” Meighan says.