Section 6115 imposes a disclosure requirement on charitable organizations that receive quid pro quo contributions in excess of $75. A quid pro quo contribution is a payment made partly as a contribution to the charity and partly in consideration for goods and services provided to the payor by the charitable organization. The disclosure by the charity to the payor must include (i) a statement informing the donor the amount of the contribution deductible for federal income tax purposes is limited to the excess of the amount of any money and the value of any other property contributed by the donor over the value of the goods or services provided by the donee organization, and (ii) a good-faith estimate of the value of the goods or services provided by the donee organization.

A common example of quid pro quo contributions are payments to a charitable organization for a charity dinner. Assume a donor pays $100 to the charity for the right to attend a dinner with a fair market value of $40. Section 6115 requires the charity to inform the donor the value of his or her contribution is $60 rather than the full $100. The $75 threshold in Section 6115 is based on the amount transferred to the charity rather than the amount deductible as a charitable contribution. The $100 payment triggers the Section 6115 requirement even though the amount deductible is less than $75. The requirement that the notice be made in a written format has been interpreted to include electronic mail or perhaps even a confirmation provided on the charity’s website.

There are exceptions to the requirements of Section 6115. Rev. Proc. 90-12 provides goods and services having an insubstantial value should not be taken into account. The exceptions in the Revenue Procedure include situations in which (i) the benefit to the donor is not greater than 2% of the donation or $50, whichever is less; (ii) the only benefit to the donor is certain token items such as bookmarks, calendars, key chains, mugs, posters, tee shirts, etc. bearing the name of the charitable organization; (iii) donations are made via a broadcasting medium where announcing the fair market value is impractical; and (iv) the benefit to the donor is only a charitable newsletter or program guide that does not have a fair market value. The Regulations provide an exception where a donor pays an annual membership fee to a charitable organization of $75 or less that provides the donor certain benefits including (i) free or discounted admission to the organization’s facilities or events, (ii) free or discounted parking, (iii) preferred access to goods or services, or (iv) discounts on the purchase of goods or services. In contrast to these exceptions, the Tax Cuts and Jobs Act of 2017 denies a deduction for any contributions made to a college or university for which the donor receives a right to purchase tickets to an athletic event in an athletic stadium of the institution.

Section 6714 imposes on charities a penalty of $10 for each quid pro quo contribution for which the required disclosure is not made. The total penalty to the charity is capped at $5,000 per fundraising event. However, the charity can avoid the penalty if it establishes reasonable cause for its failure to comply.

John G. Hodnette is an attorney with Johnson Allison Hord in Charlotte.

July 14, 2022/by TAX