ISSUE

Be careful with your donor receipting with respect to charity benefit events such as banquets, dinners, galas, etc.

 

SITUATION

Troas Bible College (TBC) is a private college exempt under Internal Revenue Code section 501(c)(3) and 170(b)(1)(A)(ii).  They are required to file Form 990 annually.

They are hosting their first annual fundraising dinner.  The cost to attendees is $80 per plate.  Barbara’s Real Pit Steak House is providing the food (prime rib, baked potato, mixed vegetables, and key lime pie for each plate) free of charge as a donation to TBC.  Student volunteers from TBC will be doing the serving.

TBC’s Controller calls us to confirm her understanding of the required donor receipting process.  She says, “Our Board Chair’s brother told us that we do not have to provide the donor/attendees who purchase an $80 ticket with a value of the meal since it was donated to us.  Is that correct?”

We answer, “Nope.”  The requirements are that you provide a donor/ticket purchaser of this type with a “quid pro quo” receipt that is a written disclosure that must:

  • Inform a donor that the amount of the contribution that is deductible for federal income tax purposes is limited to the excess of money (and the fair market value of property other than money) contributed by the donor over the value of goods or services provided by the organization
  • Provide a donor with a good-faith estimate of the fair market value of the goods or services

This is true even if some of the goods or services are donated or discounted to your institution.  The requirement is not TBC’s cost of the goods/services – in this case food – but the fair market value.

We further tell them that it is generally best to get a good-faith estimate of the fair market value from the provider of the meal, in this case Barbara’s Real Pit Steak House.

 

RULES

Form IRS Publication 1771:

Written Disclosure Statement. Donors may only take a contribution deduction to the extent that their contributions exceed the fair market value of the goods or services the donors receive in return for the contributions; 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 services provided by the organization. A contribution made by a donor in exchange for goods or services is known as a quid pro quo contribution.

A written disclosure statement must … provide a donor with a good-faith estimate of the fair market value of the goods or services.  An organization must furnish a disclosure statement in connection with either the solicitation or the receipt of the quid pro quo contribution. The statement must be in writing and must be made in a manner that is likely to come to the attention of the donor. For example, a disclosure in small print within a larger document might not meet this requirement.

From IRS Publication 526:

Charity benefit events. If you pay a qualified organization more than fair market value for the right to attend a charity ball, banquet, show, sporting event, or other benefit event, you can deduct only the amount that is more than the value of the privileges or other benefits you receive.

If there is an established charge for the event, that charge is the value of your benefit. If there is no established charge, the reasonable value of the right to attend the event is the value of your benefit. Whether you use the tickets or other privileges has no effect on the amount you can deduct. However, if you return the ticket to the qualified organization for resale, you can deduct the entire amount you paid for the ticket.

CAUTION:  Even if the ticket or other evidence of payment indicates that the payment is a “contribution,” this doesn’t mean you can deduct the entire amount. If the ticket shows the price of admission and the amount of the contribution, you can deduct the contribution amount.

 

BOTTOM LINE

  • IRS Publication 1771, “Charitable Contributions” can be very helpful in providing your institution with basic information about donor receipting.
  • If you provide goods or services with respect to most contributions, your institution must provide a written disclosure statement to donors.
  • The written disclosure statement must 1) inform a donor that the amount of the contribution that is deductible for federal income tax purposes is limited to the excess of money (and the fair market value of property other than money) contributed by the donor over the value of goods or services provided by the organization, 2) provide a donor with a good-faith estimate of the fair market value of the goods or services.
  • Generally, if you provide a free meal at a dinner or banquet, make an ask for funds – but no payment is required – you will not be required to provide a fair market value of the meal to donors.

 

Specific questions? Email Dave Moja

The information provided herein presents general information and should not be relied on as accounting, tax, or legal advice when analyzing and resolving a specific tax issue. If you have specific questions regarding a particular fact situation, please consult with competent accounting, tax, and/or legal counsel about the facts and laws that apply. 

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