The problem arises when it comes time for taxpayers to deduct these contributions. Theoretically, the charities are responsible for determining the value of any benefits given to donors and should be advising them about how much of their contributions are deductible.
If a taxpayer voluntarily contributes money or property to a charity and receives nothing in return, that contribution is fully deductible. Generally, if a donor receives benefits or privileges (that is, something of value) in return for a contribution, the deduction should be limited to the amount of the contribution minus the fair market value (FMV) of the benefit received. For example, if a taxpayer receives a ticket to a concert in return for a donation, his deduction is the amount donated less the FMV of the ticket. (Note that not using the ticket would not increase the deductible amount. The key to the deduction is whether the benefit is accepted, not whether it is exercised.)
This FMV is to be determined by the charitable organization and passed on to its patrons so they can determine the deductible amounts of their contributions. If the charities cannot come up with an exact determination of a benefit's value, a reasonable estimate may be used.
New guidelines. Many charities have found this requirement to be extremely burdensome, especially for small items that are of token value relative to the amounts contributed. In response, the Internal Revenue Service has released a set of guidelines that may ease this problem. If the guidelines are met, charities may treat the benefits as having insubstantial value and may advise contributors that their donations are fully deductible.
Covered activities. The contributions must be part of a fund-raising campaign designed to raise deductible contributions, in which the charity determines the FMV of the benefits offered (or a reasonable estimate if an exact determination is not possible); the charity states in its solicitations (whether written, broadcast, telephoned or made in person), as well as on any documents issued in connection with contributions, how much is deductible.
One of two additional requirements must be met. Either (1) the FMV of all benefits received for the contribution cannot be more than 2% of the payment or $50 (whichever is less) or (2) the payment must be at least $27.26 (adjusted annually) and the only benefits received are token items (such as bookmarks, calendars, key chains, mugs, posters or tee shirts) bearing the organization's name or logo. The cost (not the FMV) of all the benefits received by a donor cannot exceed $5.45 (also adjusted annually).
If the benefits given to contributors cannot meet these guidelines, their FMVs must be determined and will limit the donor's deductible amount.
The Internal Revenue Code includes a specific exception for the deductibility of amounts paid for college or university ticket rights. If a taxpayer makes a payment to (or for the benefit of) a college or university, in exchange for the right to purchase seating at an athletic event, 80% of the payment will be treated as a charitable contribution. This rule applies whether or not tickets would have been readily available to the taxpayer without the payment.
Note: The last rule does not apply if the taxpayer receives tickets or seating (rather than the right to purchase tickets) in return for his contribution. No amount paid for the actual purchase of tickets is deductible.
Contributions to colleges or universities for other athletic benefits (such as parking benefits, media guides or other entitlements) are not included in this exception and must be measured against the general guidelines governing charitable contributions.
For discussion of these new guidelines, see "The Deductibility of Charitable Contributions After Rev. Proc. 90-12," by Scott Cairns, Diane Riordan and Michael Riordan, in the October 1990 issue of The Tax Adviser.
Ed. note: The material discussed provides general information. Before you take any action in this area, the appropriate code sections, regulations, cases and rulings should be examined.
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|Author:||Fiore, Nicholas J.|
|Publication:||Journal of Accountancy|
|Date:||Oct 1, 1990|
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