Tax Exemptions for Donors and Buyers
When sponsoring fundraising events there are two general rules that organizations must follow in order to comply with the substantiation and disclosure requirements for federal income tax return reporting purposes.

Per IRS Publication 1771:

  1. “A donor is responsible for obtaining a written acknowledgement from a charity for any single contribution of $250 or more before the donor can claim a charitable donation on his/her federal income tax return”.
  2. “A charitable organization is required to provide a written disclosure to a donor who receives goods or services in exchange for a single payment in excess of $75.”

Written Acknowledgements

When a person makes a donation to an auction or other fundraising event, that person must obtain contemporaneous, written acknowledgment of the contribution from the recipient organization.

Simple Donations – Gifts that your organization receives, for which you provide nothing in return

The written acknowledgment should contain the following:

  1. Name of the organization
  2. Amount of cash contribution
  3. Description (but not the value) of non-cash contribution
  4. Statement that no goods or services were provided by the organization in return for the contribution

Quid Pro Quo Donations – Gifts that provides or for which the donor receives something of value

The written acknowledgment should contain the following:

  1. Name of the organization
  2. Amount of cash contribution
  3. Description (but not the value) of non-cash contribution
  4. Description and good faith estimate of the value of goods or services provided in return for the contribution

The donor must reduce the amount of the contribution deduction by the fair market value of the goods and services provided by the organization.

Exceptions:

Insubstantial goods or services of a charitable organization provided in exchange for contribution do not have to be described in the acknowledgment. Goods and services are considered to be insubstantial if:

  1. the FMV of the benefits received does not exceed the lesser of two percent of the payment or $104, or the payment is at least $52.00, the only items provided bear the organization’s name or logo and the cost of these items is within the limits of ‘low-cost articles’ which is $10.40 for 2014.

Example from IRS publication 1771:

If a charitable organization gives a commemorative pin bearing its logo that costs the organization $10.40 or less to a donor who contributes $52.00 or more, the acknowledgement may state that no goods or services were provided in return for the $52.00 contribution. The $52.00 is fully deductible.

It is not necessary to include the donor’s social security number or tax identification number on the acknowledgement. A separate acknowledgement may be provided for each single contribution of $250 or more, or one acknowledgement, such as an annual summary may be used to substantiate several single contributions of $250 or more.

There are no IRS forms for the acknowledgement. Letters, postcards or computer-generated forms with the above information are acceptable. For an acknowledgement to be considered contemporaneous it must be provided to the donor prior to when he/she actually files the return or the due date of the return (including extensions), whichever is earlier. Generally, most organizations send the acknowledgements immediately upon receipt of the item or after the event. Another general date is by January 31 of the year following the contribution.

An organization that does not acknowledge a contribution incurs no penalty; but, without written acknowledgement, the donor cannot claim the tax deduction.

Written Disclosures

When your guests purchase items at the auction the amount paid for an item is not a pure donation for tax purposes.

Written Disclosure statement must contain the following:

  1. “the amount of the contribution that is deductible for federal income tax purposes is limited to the excess of money contributed by the donor over the value of goods or services provided by the organization” and,
  2. “a good-faith estimate of the fair market value of the goods or services.”

The IRS states: “A donor may only take a contribution deduction to the extent that his/her contribution exceeds the fair market value of the goods or services the donor received in return for the contribution; therefore donors need to know the value of the goods or services. An organization must provide a written disclosure statement to a donor who makes a payment exceeding $75 partly as a contribution and partly for goods and service”.

Example from IRS Publication 526

At a fundraising auction conducted by a charity, a guest pays $600 for a week’s stay at a beach house. The amount paid is no more that the fair rental value. The guest has not made a deductible charitable contribution. The guest cannot deduct the $600 from his/her taxes.

The organization must furnish a disclosure statement with the solicitation or the receipt of the quid pro quo contribution. The statement must be written and must be made in a manner that is likely to come to the attention of the donor.

A written disclosure statement is not required where the good or services given to a donor meet the token exception rule mentioned above.

Penalty if Written Disclosure Requirement is not met

The penalty is $100 per contribution, not to exceed $5,000 per fundraising event or mailing. An organization may avoid the penalty if it can show that failure to meet the requirements was due to reasonable cause.

Special Rules

For non-cash contributions that are over $500, the donor must file a Form 8283 – Noncash Charitable Contributions. An appraisal or other determination of the fair market value described as a “price a willing, knowledge buyer would pay a willing knowledgeable sell when neither has to buy or sell” is required.

For contributions of ‘qualified vehicles’, a car, boat or airplane which is valued over $500 the organization is required to complete and file Form 1098-C – Contributions of Motor Vehicles, Boats and Airplanes. The donor cannot take a charitable deduction for the qualified vehicle unless a copy of Form 1098-C is attached to his/her return.

Please consult any member of the Tate & Tryon tax team if you have any questions regarding this matter.

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