It is a well-established IRS rule that donors must reduce any charitable itemized deduction if they receive goods or services in exchange for a gift.
For example, if Henry decides to go to a charity’s gala ball and write the charity a check for $250, he can expect to receive a written acknowledgment from the charity for the value of the charitable gift, which would be $250 minus the estimated value of the meal and evening’s entertainment. If the value of those things was estimated at $75, his deduction for tax purposes would be $175.
There are some interesting exceptions to the IRS tax rules with which fundraisers should be familiar. The exception that seems to raise the most questions pertains to “low-cost articles” or “token gifts” for donors.
The IRS allows charitable organizations to give donors certain low-cost articles that do not require the donor to reduce his or her deduction or the charity to provide the value of the items. These types of items and their maximum value were first described in an IRS Revenue Procedure in 1990 and have been adjusted annually for inflation since then.
For 2015, these low-cost articles cannot be valued at more than 2 percent of the donor’s gift or $105, whichever is less. Token items such as calendars, coffee mugs and other items bearing the organization’s logo are allowable, if this cost is less than $10.51 and the gift is at least $52.50.
Special rules apply for certain membership and religious benefits. For more information, see IRS Publications 1771 and 526.
Check out our blog for recent posts about gift substantiations for charitable deductions and tax issues related to gala dinners.