While charities frequently bestow gifts upon those who make generous donations -- from concert tickets to merchandise -- the IRS is becoming more aggressive in ensuring those gifts are properly accounted for.
"The IRS has become more vigilant in how it polices activity, particularly when the agency sees an opportunity for people and organizations to abuse the rules by being overly aggressive on how they value things," says Michael Repak, vice president and senior estate planner at Janney Montgomery Scott in Philadelphia.
A client who receives a benefit, such as a dinner or tickets to a ballgame, in exchange for a charitable donation, cannot deduct the entire amount of the donation. Instead, he or she must first subtract the fair market value of the good or service received, and may only take a tax deduction on the difference. Charitable organizations are required to provide written disclosures to donors who receive goods or services in exchange for a single payment in excess of $75.
"The IRS is pretty clear on this," says Robert Pagliarini, president of Pacifica Wealth Advisors in Mission Viejo, Calif.
There are a few exceptions. "Insubstantial" goods or services that charities dole out during fundraising events in exchange for donations are exempt from these rules, according to the IRS website.
"Token exceptions" are also exempt. Those are benefits for which the fair market value does not exceed the lesser of 2% of the payment or $102, or the payment is at least $51, and the items provided -- such as calendars, mugs or posters that bear the charity's name or logo -- cost the charity less than $10.20. For example, if a charity gives a coffee mug bearing its logo that costs less than $10.20 to a donor who contributes $51 or more, the charity may state that no goods or services were provided in return for the $51 contribution. The $51 is fully deductible.
Katie Kuehner-Hebert is a writer in Running Springs, Calif. She's contributed to American Banker, Risk & Insurance and Human Resource Executive.