Charitable contributions.

Under current law, a taxpayer who receives membership benefits in return for a payment to a qualifying organization may not claim a charitable deduction for more than the excess of the contribution over fair market value of the membership benefits. But how do you value benefits such as free parking, free or discounted admission to certain events or discounts on selected merchandise? Often, you can't.

The Internal Revenue Service has just released proposed regulations (1.17OA-1, 1.17OA-13 and 1.6115-1) that allow taxpayers and donee organizations to disregard certain membership benefits provided in return for a payment to the donee organization. They affirm that a charitable contribution will not be allowed unless the taxpayer's payment is above the fair market value of any goods or services received in return. However, they also say a contribution shall not be reduced by

* Goods or services with less than substantial value under existing IRS guidelines (items costing $6.60 or less for 1995), noncommercial-quality newsletters and benefits worth 2% or less of a payment, up to a maximum of $66 for 1995.

* Annual membership benefits offered in return for a payment of $75 or less that give the taxpayer free or discounted parking or admission to facilities or events or discounts on goods or services.

According to the proposed regulations, the charitable organization may use any reasonable method applied in good faith to estimate the value of goods or services provided to donors. The fair market value may differ from the cost to the donee organization. A taxpayer is not required to determine how the donee organization made the estimate but may not treat an estimate as the fair market value if he or she knows it is unreasonable.

Observation: Proposed regulations 1.170A-13(f)(14) address a related problem that has plagued CPAs in recent years. Unreimbursed expenses incurred in rendering charitable services are deductible. Often, these expenditures are substantial, especially if extensive travel is required. In the past, it was difficult to substantiate these charges because the donee had no knowledge of these out-of-pocket charges and therefore had trouble providing the donor with proper substantiation.

The proposed regulations solve this problem by allowing substantiation using the donor's normal records and an abbreviated written acknowledgment from the donee describing the services provided by the donor and the dates they were provided. Also, partners and S corporation shareholders are not required to obtain any acknowledgments before taking their share of the entity's charitable deductions because under the new regulations they will be treated as taxpayers for purposes of section 170(f)(8).

FYI 

* New regulations allow the IRS to collect taxes, at the highest rate, from an individual in illegal possession of $10,000 in cash or its equivalent (such as unreported gambling winnings, stolen income or income from other illegal activities) who does not admit to being the owner of the cash or does not allege that it belongs to another person whose identity is readily ascertainable and who acknowledges ownership.

* Members of the armed forces on active duty who are transferred to new permanent duty stations can now exclude from income their reimbursed moving costs.

* Household employers must include an employer identification number (EIN) on all W-2 and new schedule H forms. Household employers who don't have an EIN should file form SS-4 to get one. (Disregard the note at the top of the second column of page 2 of the form that says household employers do not have to file one. A revised form SS-4 will be available by January 1996.)