by Lisa A. Runquist
WORKS, February 1992, Vol. II, No. 2.
Around this time of year, we all have to face the fact that it’s time again to prepare our income tax returns. If you’re like me, you’ll look for every possible deduction that may be available.
When we contributed to our churches last year, we may have been laying up treasures in heaven. For those of us who itemize, our giving has the additional benefit of giving us an additional tax write-off.
Or has it?
Fundraising for nonprofits has become a big business. As more nonprofits search for funds in a depressed economy, they develop new ways of raising money. On the other hand, as the deficit grows, the government continues to look for additional sources of taxable income. The result of these conflicting goals is that the money you contribute is not always fully deductible.
Outright donations of money, such as tithes and offerings to your church, continue to be legitimate income tax deductions. You can list them on your Schedule A in their entirety. (There are a number of other contributions for which a deduction can be received; see your tax advisor for details.)
But what about the suggested donation of $10 you made when you attended the Christmas concert? Or the $100 a plate dinner you paid for and planned to attend, but missed because Aunt Matilda flew into town? Or the $50 that got you the daily devotion guide? Or the $20 you contributed to your favorite TV program, in exchange for an autographed photo of its host? What about the $1,000 you paid for a fur coat at the hospital charity auction? You say you had to skip the fur coat, because of the $4,000 you had to contribute to the church’s school, to cover your child’s tuition?
All of these “contributions” have something in common: The donor received a benefit in exchange for the contribution. As a result, the contribution may not be fully, or even partially deductible. Unless the value of what was received was nominal, then that value must be deducted from the amount contributed to arrive at the allowable deduction.
Let us look at the examples:
“Suggested donation” to attend concert. If $10 must be paid to attend the concert, then it’s not a donation. The actual value of the concert must be subtracted from the $10 to determine the appropriate deduction. And unless it can be shown that the value received was less than $10, no donation will be available. For future concerts, your church should be encouraged to state the value of the concert and the amount of the available deduction. Further, any required payment should not be referred to as a donation. This is misleading and may be considered by the IRS to be encouraging tax fraud.
Of course, if the concert is truly free and no contribution need be made to attend, then any contribution should be able to be deducted. However, unless it can be clearly shown that people understood that the “suggested donation” was strictly voluntary, and that at least some people attended without making such payment, the deduction will likely be denied. It would have been more appropriate to simply encourage attendees to donate (by passing collection plates, for example) so that the amount given would clearly be a deductible gift.
The dinner you paid for and planned to attend, but missed because of Aunt Matilda. If you gave the ticket back to the church before the dinner, you can deduct the entire amount contributed, as no benefits were received. However, if you kept the ticket in case Aunt Matilda’s trip was cancelled, then you must deduct the value of being able to attend the dinner, just as if you had actually been there. As with the concert, the church should have valued the dinner (e.g. $25), so you would know how much was deductible as a charitable contribution (e.g. $75).
Autographed photograph of the TV host. If the program was conducting a fund-raising campaign and informed you of how much of your contribution was deductible, and the fair market value of the photograph is nominal (the guidelines issued by the IRS provide a safe harbor for articles worth not more than 2% of the payment or $50, whichever is less — in this case, the upper limit would be $.40), the entire value of your contribution can be deducted. However, if the photo’s value is substantial, its value must be subtracted from the contribution to determine the amount that can be deducted.
Daily devotion guide. As with the photograph, if the the fair market value of the guide is insubstantial (under the guidelines, a $50 donation would allow $1), the entire amount can be deducted. Alternatively, since the payment was more than $25 (as adjusted for inflation), if the guide is a token item (worth no more than $5, adjusted for inflation) and bears the organization’s name or logo, then the guidelines allow the entire donation to be deducted. Therefore, if the fair market value of the guide is $1 or less, or if the guide is worth less than $5 and has the organization’s name or logo imprinted on it, your entire donation can be deducted.
Fur coat from hospital charity auction. If the value of the coat was $600, was clearly marked as such and you paid $1,000, your available deduction is $400. If the value of the coat was not substantiated, it may be difficult to obtain any deduction. Clearly, if the value is $1000 or more, then no deduction is available.
Mandatory contribution to church school, for your child’s tuition. Tuition is never deductible as a charitable contribution. Never. Not even if it is called by another name. If the church school is partially or entirely supported by the church and there is no relationship between the amount contributed to the church by the parents, and the number of children attending the school, then contributions to the church may be deductible. However, if the “contribution” is based on the number of children attending the school, or it can be shown that parents who were not required to pay “tuition” contributed more to the church than non-parents, the IRS will conclude that this was simply a disguised method of paying tuition, and the deduction is likely to be denied in whole or in part. Again, contributions required in exchange for a benefit to be received are not deductible.
Of course, if you contributed to a scholarship fund for the benefit of deserving children, and the children benefiting are not related to you or otherwise chosen by you, then the deduction will likely be allowed. However, if it is your children (or grandchildren), or the child of a close friend who benefits, then no deduction is available.
Deductibility of contributions is an area in which the IRS is very interested. If you have any questions on specific items, you should discuss them with your tax advisor – before you file.
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Copyright © 2009 Lisa A. Runquist, Attorney at Law