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Monday, June 24, 2013

Fundraising Events and Deductibility

We’re dusting off a couple of classic Revenue Rulings (Rev. Rul.) and moving them to the front of the shelf: Rev. Rul. 67-246 and Rev. Rul. 89-51. Each provides guidance that is as relevant today as when it was issued.

Rev. Rul. 67-246  presents 12 examples of transactions that often occur in the fundraising activities of Sec. 501(c)(3) organizations. It explains how to determine the amount, if any, that is deductible by the contributor and the theory underlying the conclusions. Whether you’re planning a gala, a premiere, a card sale, a membership meeting or a bazaar, Rev. Rul. 67-246 has something for you.

Rev. Rul. 89-51  will help you explain to:

  1. The owner of the vacation home that the donation of the use of the vacation home for a week is not a deductible contribution.
  2. The person that purchases the right to use the vacation home that his/her purchase of the right is not a deductible contribution. 

Qualifying Deductions
To be deductible as a charitable contribution, a payment must be a gift. To be a gift, there must be, among other requirements, a payment of money or transfer of property without adequate consideration. When a payment is made to purchase an item of value, the presumption arises that no gift has been made for charitable contribution purposes; the presumption is that the payment equals the purchase price. To show that a gift has been made requires proof that the portion of the payment claimed as a gift represents the excess of the amount paid over the value received. It is also important to show that the donor intended to make a gift as opposed to a purchase.

How Will a Donor Know the Value of the Benefit Received?
The IRS has directed charitable organizations to stipulate and to disclose in advance of the solicitation:

  1. The amount of the payment that will be a contribution
  2. The fair market value of the benefits that will be received by the donor (not a contribution)

Although the charity has an obligation to value the goods and services provided to the donor in exchange for a payment, the charity does NOT have an obligation to value items contributed TO the charity.  For items contributed to the charity, the acknowledgement must include a description of the item(s), the date contributed and whether the donor received anything of value in exchange for the items contributed. IRS Publication 1771  includes excellent guidance regarding donation acknowledgements and other relevant information.

The Receipt of Insubstantial Benefits
Sometimes, the value received by the donor in exchange for a payment is so small that the full amount of the contribution remains deductible. The determination of what qualifies as insubstantial is explained in detail in Revenue Procedure 90-12. The numbers referenced in Rev. Proc. 90-12 are indexed for inflation, and the 2013 amounts are as follows:

Low-cost Article Limit: $9.90
“Payment” Amount: $49
“Benefit” Amount: $99

If the subject of charitable giving seems complicated, that is because it is. In addition to the resources referenced above, excellent guidance for donors may be found on IRS.gov. There, donors will find mini-courses, videos, IRS Publications and helpful hints regarding the treatment of unusual contributions. And if you’re ever stuck, Armanino is here to help. 


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