Section Library
Fund Raising Disclosure
Fund Raising Disclosure and other reporting requirements
Exempt organizations are required to provide donors with certain information as to the deductibility of amounts paid to the organization as part of a fund raising event. Under the Revenue Reconciliation Act of 1993, no deduction is allowed for any charitable contribution of $250 or more after 1993 unless the taxpayer substantiates the contribution by a contemporaneous written acknowledgement from the donee organization of the contribution. The provision is effective for contributions made on or after January 1, 1994. Written acknowledgement must include the following: 1. Amount of cash and a description, but not necessarily the value of any property other than cash contributed. 2. If the donee organization provided any goods or services in consideration, in whole or in part, for any property contributed. 3. Description and good faith estimate of the value of any goods or services received.
Although this provision is imposed on the taxpayer taking the deduction, from a practical standpoint it imposes an acknowledgement reporting requirement on exempt organizations which will have to provide the written acknowledgement to donors.
The IRS Commissioner issued publication 1391, which restates that where charities fail to inform a contributor of the non-deductible value of the benefit that the contributor received in exchange for a contribution, the presumption is that the total amount paid represents the fair market value (FMV) of the goods or services received. As a general rule, where a transaction involving a payment is in the form of a purchase of an item of value, the presumption arises that no gift has been made for charitable contribution purposes as the payment represents a purchase price for goods or services. In showing that a gift has been made, an essential element is proof that the portion of the payment claimed as a gift represents the excess of the total amount paid over the value of the consideration received. This may be established by evidence that the payment exceeds the fair market value of the privileges or other benefits received.
The deductible portion of an entertainment event is the portion of the admission price in excess of the normal admission price for similar events. If the admission price is approximately the same as that of established admission prices for similar events, then no portion of the purchase price is deductible as a charitable contribution.
Amount paid for chances to participate in raffles, lotteries, or similar drawings or to participate in contests for valuable prizes, are not gifts in such circumstances and do not qualify as charitable contribution.
Revenue Procedure 90-12 provides "safe harbor" guidelines for charitable solicitations which involve token benefits. Benefits received in connection with a payment to a charity will be considered to have insubstantial fair market value (and as such, the full amount contributed is deductible) if certain requirements are met.
- The payment occurs in the context of a fund raising campaign where the patrons are informed as to the amount of their payment which is deductible; and
- The FMV of all benefits the patron receives is not more than 2% of the payment, or $50, whichever is less; or
- The payment is $25 or more and the benefits received are of a token nature.
Effective for contributions made on or after January 1, 1994, the Revenue Reconciliation Act of 1993 will require charitable organizations to inform donors that quid pro quo contributions in excess of $75 are only deductible to the extent that the contributions exceed the value of goods or services provided by the organization.
Organizations will be required, in their solicitation or in the donor receipt of the contribution, to provide a written statement that:
- Informs the donor that the amount of the contribution that is deductible for federal income tax purposes is limited to the excess of the amount contributed by the donor over the value of the goods or services provided by the organization, and
- Provides the donor with a good-faith estimate of the value of the goods or services furnished to the donor by the organization.
Penalties of $10 per contribution will be imposed upon charities that fail to make the required disclosure, unless the failure is due to reasonable cause. The penalty is capped at $5,000 per fund-raising event or mailing. The penalty applies to outright failure, inaccurate disclosure, or incomplete disclosure.
Token benefits include bookmarks, calendars, key chains, mugs, posters, tee shirts, etc., which bear the organization's name and logo. The cost to the charity of the benefits provided to the donor must, in aggregate, be within the limits established for "low cost articles" under Section 513(h)(2).