Personal Benefits Not Deductible

• Posted on April 24, 2008
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Givers may deduct contributions of cash or property, but only to the extent they received no personal benefit from the donation. Often, the IRS attributes at least some (if not total) personal benefit to amounts expended for items like dinner tickets, church school tuition, YMCA dues, raffles, etc. To determine the contribution amount, subtract the FMV of the "personal benefit" item from the cost and deduct the remainder. Most charities now allocate the deductible, nondeductible portions.

Personal Benefit Forfeited - In a Tax Court case, the issue of whether an unused benefit ticket can produce a charitable contribution was raised. The Tax Court made an interesting observation. The taxpayers had purchased tickets to their daughter's school music recital. They did not attend and then claimed the entire expense as a contribution. The Court indicated their failure to attend does NOT increase their contribution. Acceptance of the ticket "creates an expectation that taxpayer will attend and assert the right to be seated." The school is then obligated to prepare for this attendance. The Court said: "Taxpayer receives a material benefit merely by having the right to decide whether or not to attend."

Car Washes, Pancake Breakfasts, Etc. - Taxpayers often want to take deductions for amounts paid for benefit football games, youth-group car washes, parish pancake breakfasts, school plays, etc. The taxpayers have no intention of attending these events, but incur the expense as a direct contribution to the institution. Extending the logic of the Urbauer case to some of these expenses may mean that the IRS would not allow them.

Quid Pro Quo Contributions - Charitable organizations are required to inform donors that "quid pro quo" contributions over $75 are deductible only to the extent that the gift exceeds the FMV of the goods or services provided by the organization. Quid pro quo contributions are payments made partly as contribution and partly as payment for goods or services. Such contributions don't include any payment made to an organization organized exclusively for religious purposes, in return for which a taxpayer receives solely an intangible religious benefit that generally isn't sold in a commercial transaction.

Charities are required to provide a written statement in conjunction with quid pro quo donations. The statement must give the donor a good-faith estimate of the value of the goods or services included with the "gift". Charities who fail to do this are subject to a $10 per contribution penalty (but capped at $5,000 per fundraising event), unless reasonable cause can be shown.