As spring fundraising season approaches, there are a few fundraising reminders and best practices that bear repeating. The most important involves fundraising events at which guests have a reasonable expectation of receiving goods or services in exchange for the price of attendance. In this situation, some portion of the ticket price is not deductible as a charitable contribution because it is considered a quid pro quo amount. Quid pro quo literally means “something for something.” The portion of the ticket price that is not deductible as a charitable contribution is the fair market value of the benefit received. The cost to the charity of the benefit is not relevant.
Charities are required to provide the value of the non-deductible portion to their guests when the payment is more than $75. Charites that fail to do so may be subject to a monetary penalty imposed by the IRS. This acknowledgement can be accomplished on the face of the invitation or through a subsequent donor acknowledgment letter.
Note that it does not matter that the meal or other benefit was sponsored by a third party or donated to the charity and thus had no cost to the charity. It still has a fair market value benefit to the attendee. Also, it does not matter whether the individual actually attended the event and partook of the goods or services offered. If the individual had a right to receive the goods or services, their charitable contribution is still limited.
One popular option many charities have adopted as a best practice in fundraising is adding a check box to the invitation or registration form that clearly indicates the donor does not plan to attend the event, but wants to make a contribution anyway. This allows the donor to make a contribution and receive a full charitable contribution deduction without being subject to the quid pro quo limitation. By checking the box on the registration form, the donor foregoes any right to receive the goods or services offered.
On occasion, one guest will purchase an entire table for a number of attendees. In that case does each guest have to limit their contribution to the charity by the quid pro quo amount? The short answer is, no. Only the person that purchases the table and has the right to receive the meal, entertainment, or other benefit is subject to the quid pro quo limitation. Everyone else is a guest of the table purchaser and thus any contribution they make is fully deductible.
Under some circumstances, the purchaser of an entire table may not be at all interested in taking a charitable contribution deduction. They may be taking the expense as an ordinary business expense under section 162. If that is the case, the limitation may be 50% as a meal or entertainment expense or it may not subject to any limitation at all as a marketing expense.
Whether or not attendees take a charitable contribution deduction for the contribution at an event is not the charity’s concern as long as proper acknowledgments were given to the donors indicating the quid pro quo. The donors’ allowable deductions are for them to discuss with their own tax advisors.
A very helpful and well written IRS document related to this subject is Publication 1771. It can be found at www.irs.gov.