FAQ's - CHARITABLE GIFT PREMIUMS
The following guidelines apply in determining the deductible amount of contributions for federal tax purposes when the donors receive something in return for their contributions to a §501(c)(3) organization. The guidelines provide that insubstantial benefits received by the contributor (in the context of a charitable fund-raising campaign) are disregarded, which makes the contribution fully deductible.
What is an "insubstantial benefit"? The guidelines provide the following three alternative limitations on what are insubstantial benefits:
1. The fair market value of all the benefits received (i.e., gift premiums) is not more than 2 percent of the donation, or $, whichever is less;
2.The contribution is $ or more, and the only benefits received by the donor in return during the calendar year have a cost, in the aggregate, of not more than $; or
3.In connection with a request for a charitable contribution, the charity mails or otherwise distributes free, unordered items to patrons, and the cost of such items (in the aggregate) distributed to any single patron in a calendar year is not more than $.
What other general considerations apply?
1.The donations occur in the context of a fund-raising campaign in which the charity informs patrons how much of their payment is a deductible contribution. A qualifying fund-raising campaign is one designed to raise tax-deductible contributions, in which the charity determines the fair market value of the benefits offered in return for contributions (using a reasonable estimate if an exact determination is not possible), and states in its solicitations (whether written, broadcast, telephoned, or in person)--as well as in tickets, receipts, or other documents issued in connection with contributions--how much is deductible and how much is not. If a charity is providing only insubstantial benefits in return for a payment, fund-raising materials should include a statement to the effect that:
2.The $, $, and $ amounts are good through December 31, 2017. The amounts are adjusted for inflation at the end of each calendar year.
3.Examples of "token items" having an insubstantial value include bookmarks, calendars, key chains, mugs, posters, tee shirts, etc. bearing the organization's name or logo.
4.The total amount of a pledge payable in installments will be considered to be the amount of the payment. Also, benefits provided by charities in the form of cash or its equivalent will never be considered insubstantial.
5.If items offered to contributors are donated to the charity or if services are donated in connection with the production of an item, the cost to the charity for the above purposes will be a reasonable estimate of the amount the organization would have to pay for the items or services in question.
6. The total premiums given to any one donor in a full calendar year cannot exceed $ in cost in the aggregate. Thus, the charity has the burden of keeping track of which premiums are given to every donor in every year.
7. The safe harbor for items which cost less than $ requires that either: 1) the donation is at least $; or 2) the item is given out for free, and is "unordered." Thus, if donations are solicited by saying, "we'll send you a copy of the latest album by so-and-so on cassette or CD," it may be viewed as an "order." For such items, require a minimum $ donation.
8. When describing the deductible and non-deductible portions of any donation, the non-deductible portion is always based on the premium's fair market value, not its cost to the charity. The cost of the item is relevant solely in determining whether it must be offset against the donation at all. But, if an offset is required, it is the value which is offset, not the cost.
9. The value of premiums such as books, videos, etc. having a cost over $ will always have to be disclosed as non-deductible unless the value of the donation is at least 50 times the value of the premium.
10.It is extremely unlikely that any premium with a value of at least $ will have a cost less than $, therefore, premiums valued over $ will almost always be disclosed and deducted from the value of the contribution, even if the donation is at least 50 times such value.
How should receipts be worded when gift premiums have a value which is more than insubstantial?
Section 6615 requires a charity to provide a written statement to the donor whenever it receives a "quid pro quo contribution" over $. A "quid pro quo contribution" includes any contribution where the gift premium is more than insubstantial. Of course, it is a good idea to provide the same written statement for a "quid pro quo contribution" under $ as well.
The required statement must: 1) inform the donor that the deductible portion of the payment is limited to the amount by which the payment exceeds the value of the goods or services (gift premiums) provided by the charity; and 2) provide the donor with a good faith estimate of the value of the gift premiums.
Section 6714 imposes a penalty of $ for every contribution in respect of which Sec. 6615 is violated, up to $ for any one fundraising event or mailing.
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FAQs-Charitable Gift Premiums