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The IRS Speaks Latin: Quid Pro Quo Disclosures

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The IRS Speaks Latin: Quid Pro Quo Disclosures

Quid pro quo is Latin. It means “something for something.”

A contribution made by a donor in exchange for goods or services is a quid pro quo contribution.

If you get a donation greater than $75, and give the donor something in return, you must disclose the value of that something to the donor. If under $75, it can look something like this.

Quid Pro Quo Example

In your organization’s annual fundraiser, you ask a donor to give $100. In return, you give the donor a concert ticket that has a fair market value of $40.

Donors can only claim a deduction for the amount they contributed above the amount of the goods or services they received.

Donor gives $100.
Donor receives $40 concert ticket.
Donor claims $60 for charitable contribution.

Because the donor’s payment exceeds $75 you must give the donor a written disclosure statement for the value of the concert ticket.

The quid pro quo disclosure statement must provide the donor with a good-faith estimate of the fair market value of the goods or services. It must also tell donors that they can only claim the contribution amount that exceeds the fair market value of the goods or services provided. Your written statements must capture the attention of donors. No fine print!

Sample letter to donor:

Dear [Donor]:

Thank you for your cash contribution of $150 that [organization’s name] received on [date received]. In exchange for your contribution, we gave you a cookbook worth an estimated fair market value of $25. Therefore, for Federal income tax purposes, your contribution deduction is limited to $125. Thank you again.

Sincerely,

Penalties?

A penalty will be assessed on your organization if it fails to provide a written disclosure statement at the time of solicitation or upon receiving the contribution.

How much?

$10 per contribution, up to $5,000 per fundraising event or mailing.

Exceptions to the Rule

·          Tokens, which are insubstantial goods or services an organization provides in exchange for contributions

Goods and services are considered insubstantial tokens if these three things are true:

1.          The donor gave at least $48*;
2.          The item bears the organization’s name or logo (think calendars, mugs, or posters); and
3.          The item does not cost more than $9.60*.

* These dollar amounts are for 2010.  Guideline amounts are adjusted for inflation.

·          Membership benefits, described as annually recurring rights or privileges that result from an annual membership payment of $75 or less

Examples of membership benefits you do not need to disclose:
§          Free or discounted admissions to the organization’s facilities or events
§          Discounts on purchases from the organization’s gift shop
§          Free or discounted parking

·          Intangible religious benefits or benefits that are for religious purposes only and are not usually sold commercially

Examples of religious benefits you do not need to disclose:
§          Admission to a religious ceremony
§          Very small tangible benefits, such as wine used in a religious ceremony

 

End of Blog Quiz

1. What is the amount of the donation that triggers the quid pro quo rules? $75

2. Martin gives the required written disclosure statement for a quid pro quo donation to each donor at the end of the year along with a tax-deductible receipt for donations received that year. Would there be a penalty? Yes, $10 per contribution. The disclosure statement must come at the time of solicitation or upon receiving the contribution.

3. Sally gives a tax-deductible receipt for a quid pro quo donation where a 5-volume CD is  given to the donor. The required disclosure statement leaves the valuation of the CD set to the donor. Would there be a penalty? Yes, $10. The disclosure statement must provide the donor with a good-faith estimate of the fair market value of the goods or services.

4. Ramiro provides his donors with solely a tax-deductible receipt that includes a good-faith estimate of the fair market value of the goods or services. Is there a penalty? Yes, $10 per contribution. The required disclosure statement must also tell donors that they can only claim the contribution amount that exceeds the fair market value of the goods or services provided.

 

 

 

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