Tax Issues Involving Charities - Part 3

This column, in slightly different format, originally appeared in The San Francisco Examiner Newspaper, July 18, 1999

Copyright 1999 Robert L. Sommers, all rights reserved.

Part three of a three-part series.

Substantial contributions to this series were made by Rosemary Fei (rfei@silklaw.com), a principal at the San Francisco law firm of Silk, Adler & Colvin. Ms Fei represents nonprofit and tax-exempt organizations exclusively.

Question: : In response to a public TV pledge drive, I donated $200, and received gifts worth $300. How much is my charitable contribution deduction?

Answer: Zero. Your deduction is reduced by the fair market value (FMV) of any return benefits. Because the FMV of the gifts you then received is greater than your contribution, you have no deduction.

Note: The relevant figure is the FMV of the benefit received, not the cost of the benefit to the charity. Most public TV stations get merchandise donated by corporate sponsors, or buy them at deep discounts. What the charity paid, if anything, is irrelevant.

The same rule applies to auctions, another common charitable fundraising event: unless you pay more for something than it’s worth, there’s no charitable gift. That’s why charities usually state a value for each item in the auction program; otherwise, IRS presumes the item is worth whatever the highest bidder paid, with no charitable gift intended.


Question: My kid’s preschool is selling raffle tickets. May I deduct the ticket?

Answer: No. IRS believes that the chance to win the item is itself worth whatever you paid, so you are not making a charitable gift.

Note: Raffles are a form of gambling, illegal in California, although enforcement in the charity context is nonexistent. The only way around this prohibition is to make tickets available at no charge, which defeats the fundraising purpose.


Question: I purchased tickets to a charity fundraiser dinner for $100. They will serve a salmon dinner, which the charity says is worth $60, although I’m allergic to fish, so it’s not worth that to me. I may not even attend the event. How much can I deduct?

Answer: $40, regardless of whether or not you attend, and regardless of your subjective valuation of the dinner. You had the right to attend the dinner; often people who can’t attend will give their ticket to another charity or to a friend. The only way to get a full $100 deduction would be to notify the charity when you make the donation that you do not want the dinner ticket. If you refuse the dinner when you make the gift, your donation becomes fully deductible.

Note: Entertainment expenses for attendance at a charitable fund-raising sports event to benefit a charitable organization, which receives all proceeds, and which uses volunteers for the work is subject to a full deduction; the 50% limitation on entertainment expenses does not apply.




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