It’s that time of year when charitable organizations start planning their annual fundraising events, many of which consist of formal sit down dinners, cocktail parties, silent auctions and casino nights. However, the tax deduction allowed by the IRS for these events can vary based on the type of contribution received from your donors. But we would not recommend to doubling down with them. To assist in ensuring that your donors can take the full tax deduction for their contribution, we have comprised a list of the documentation the IRS requires for some of the most common contributions made.
Contributions of $250 or More
In order to deduct a single contribution of $250 or more to a charity, the donor must receive a written acknowledgment of the gift, which must include the following:
- Name of the organization
- Date of the contribution
- Amount of cash given plus a description of any property contributed. A valuation of the property contributed need not be provided
- Description and good faith estimate of the value of goods or services provided in exchange for the contribution or a statement that no goods or services were provided in return for the contribution
For cash contributions less than $250, absent a written acknowledgment form the charity, the donor must maintain a record in the form of bank record (i.e. a cancelled check).
Non Cash Contributions
If the attendee of an event will receive something of value in exchange for a charitable contribution (i.e. a quid pro quo contribution), the charity is required to provide to the contributor certain information as follows:
- A statement informing the contributor that a charitable deduction is allowable only to the extent that the contributor’s payment exceeds the value of goods or services provided by the charity.
- The statement must provide a good faith estimate of the value of goods or services provided. (i.e. the value of the dinner received at the event)
- The estimate of value is to be based on the cost to the charity of goods or services provided, but rather, on the market value of the goods and services.
No statement is required if the attendee who receives goods or services in exchange for a single payment if the payment is less than $75.
Auctions Carried Out at Fund Raising Events
Many charities hold live and/or silent auctions at their fundraising events. Auctions have the potential of generating significant amounts of revenue for the organization as the items made available for auction are often donated to the charity. The types of items made available for auction can be immense including use of vacation homes, tickets to sporting events and dinners at local restaurants to name a few.
Donated auction items – reporting to the donor
Property contributed to a charity for auction should be documented in the following manner:
- Acknowledged as to the date of the donation and a description of the property donated.
- The charity needs to provide a valuation of the property contributed.
- The donation of certain auction items may be deductible by the donor, who should consult with their tax advisor as to the deductibility of their donation to the charity.
Winnings – reporting to the winner
The charity should provide the winners of the auction the following information:
- A receipt of the amount collected from the winner and a description of the auction item.
- Some charities may make available a pre-distributed handbook or catalog of the items available for auction
- The handbook may describe each item along with a reasonable estimate of fair market value.
- Amounts paid by the winners in excess of fair market value may be deductible as a charitable contribution.
- Winners of auction items should consult with their tax advisor as to what portion, if any, the amount paid for their auction item is deductible.
Gaming Activities at Fundraising Events:
Some charities also conduct gaming activities at fundraising events as a means of both sparking interest in event attendance and for raising revenue. Gaming activities can include raffles, bingo, pull-tabs, casino nights, coin-operated gambling devices, etc. Charities interested in carrying out gaming activates must adhere to various tax reporting rules. The rules in this area include reporting the value of prizes and cash winnings. Winnings may be subject to tax withholding.
It is important to note that if the charity’s revenue from fundraising events and gaming activities exceed a certain amount, Form 990 Schedule G, Supplemental Information Regarding Fundraising or Gaming Activities , will be required. The reporting on Schedule G will require the charity to maintain detailed records as to the fundraising events during the year. Charities should also consult with the applicable state authorities to see if a license to operate a gaming activity is required.
Hopefully, 2011 will turn out to be a successful fundraising year for you and your organization. Please contact Ken Tornheim at 312.670.7444. or [email protected] for any questions or assistance on the tax aspects of fundraising events.