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Compliance Matters:

Fundraising Events and Fair Market Value

Sorting out the legalities of auctions, raffles and gala events can be a challenge. There’s plenty of, “Yes … but.”

Take a benefit dinner/dance, for example. Essentially, the IRS allows donors to claim a charitable contribution only when nothing of value is received in return. Yes, a donor can deduct the cost of the ticket … but only after the fair market value of the “goods and services” received is accounted for.

Compliance Matters: Fundraising Events and Fair Market Value

So, if tickets to a gala “dining under the stars” event are $100 each, and the fair market value of the meal and entertainment received is $35 per donor, the donor is left with a charitable deduction of $65.

Burger or Filet Mignon?
Fair market value is not based solely on your organization’s expenses, but rather on the “value of the benefit received.” The key is to determine what a similar evening would cost on the open market if it were not a fundraising event. It could be as simple as having someone on the fundraising committee check prices at a nearby restaurant or caterer and then add in the value of things like parking, entertainment and goodie bags.

Your responsibility: If you provide goods or service in exchange for a donation of more than $75, you’ll need to establish the fair market value of those goods or service, and inform the donor that only the portion of the contribution that exceeds this value is tax deductible. As you plan your event, be sure to check the IRS website to ensure that you are following the most current regulations.

What About Raffles?
In the eyes of the IRS, the chance to win a prize is something of value. This value negates the tax-deductibility of the donor’s “contribution” (the purchase price of the ticket). Make sure that anyone selling raffle tickets on behalf of your organization doesn’t promise otherwise.

Your responsibility: That said, a raffle winner is considered to have received taxable income equal to the fair market value of the item won. You’ll need to provide a detailed disclosure of the value of the raffle item on the ticket or in a written notice given to the purchaser prior to the sale.
“Who’ll Give Me Thirty?”

In general, winning bidders at a charity auction (silent or live) can take a tax deduction on their purchase — but only for the amount over the item’s fair market value.

Assume a couple’s $3,500 bid wins them a week in a Vail condo donated by your board chair. If the fair market value of the week is actually $3,000, the donors may take a charitable deduction for the difference ($500). If the week in the condo is worth $3,500 or more, no deduction is allowed.

Your responsibility: Provide a good faith estimate of items that will be available for bidding. Then make sure your receipts and thank-you letters state the fair market value of the goods bought.

For more information on this topic, or other not-for-profit issues, please contact our office at 401-331-0500 and ask to speak to one of our not-for-profit specialists.

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