MetaChat - Any nonprofit tax law experts here?

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26 February 2008

Any nonprofit tax law experts here? ..Anyone? I have a question about tax deductibility and raffles. →[More:]My question is this: I run a nonprofit that can accept tax-deductible contributions of cash or gifts. We understand that if we offer a good or service as part of a fundraising effort, that only the portion of a donation that is above fair market value is deductible. So ferinstance, if we had a fundraiser dinner and charged $100 and the FMV of the dinner was $40, only $60 of the donor's $100 is deductible.

But what about this - a restaurant wants to donate a gift certificate, and we want to raffle that certificate off for a dollar a chance. Now how does the tax deduction work? If someone buys 25 tickets for $25, is that deductible? What about the person who wins, even if they won on a $10 ticket? I don't get how to handle this one.

post by: Miko at: 15:51 | 9 comments

This article would suggest no:

Two charitable raffles have been postponed in New York because of objections by the Attorney General. In addition, despite the claims of some charities, the Internal Revenue Service does not give tax deductions for contributions made in the expectation of ''a personal return,'' a spokesman said.

But the New York Times isn't a lawyer, of course, so...

Though that does suggest that maybe you can just call the IRS and ask?

posted by occhiblu 26 February | 16:03

You're right, I'm being lazy.

posted by Miko 26 February | 16:05

Heh. I didn't mean to imply that, I just knew that if I were thinking "non-profit law" I might think "Let's try to avoid having to pay a lawyer for what might be a simple question," rather than, "I wonder if I can call the IRS for free?"

posted by occhiblu 26 February | 16:06

Ah. Here:

Contributions From Which You Benefit

If you receive or expect to receive a financial or economic benefit as a result of making a contribution to a qualified organization, you cannot deduct the part of the contribution that represents the value of the benefit you receive. See Contributions From Which You Benefit under Contributions You Can Deduct, earlier. These contributions include: ...

* Costs of raffles, bingo, lottery, etc. You cannot deduct as a charitable contribution amounts you pay to buy raffle or lottery tickets or to play bingo or other games of chance. For information on how to report gambling winnings and losses, see Deductions Not Subject to the 2% Limit in Publication 529.

posted by occhiblu 26 February | 16:10

That's fantastic, occhiblu...thanks for helping me out. I have a little twitch/spasm when I think about calling the IRS, so definitely was hoping someone might have experience or an answer that I could get without waiting on hold and navigating many subdepartments and extensions. This is helpful.

Of course, the guy coordinating this is further confusing me by asking whether the restaurant gets to deduct their donation of the gift certificate...I'm thinking no, since it basically IS fair market value - a $50 gift certificate buys $50 of restaurant food...

Sometimes I seriously consider going into nonprofit law just so I can have these answers in my head. But then I'd have to get to know the IRS even bettter...

posted by Miko 26 February | 16:15

Interesting. It seems a bit harsh to disallow deductions for charitable contributions made through lotteries and raffles since these are (I guess) a major source of revenue for many charities and, for most participants, an altruistic rather than self-interested activity. But it's impossible to calculate a fair market value for Miko's lottery tickets because the expected value of the ticket can't be determined at the time of purchase.

I don't understand your question about the restaurant's donation of the ticket: you, the charity, aren't providing a good or service, so surely it's entirely tax-deductible for the restaurant. I may have misunderstood the question though, and I don't claim to know anything about non-profit law.

posted by matthewr 26 February | 16:20

I have a total phone phobia, so I get it. Glad to help out.

I'm skimming through that IRS publication and not really seeing anything that would apply to the restaurant's situation (though the Donating Food entry is kind of fascinating -- did you know you could deduct food donations only if the food is "wholesome"?), but maybe you could send it on to the restaurant and let them sort through it.

posted by occhiblu 26 February | 16:21

Right, on reading matthewr's comment, it does seem like the standard rules of donating property would apply to the restaurant? Which is just fair market value?

posted by occhiblu 26 February | 16:30

Makes sense. Of course, to secure donations, it's to our advantage if we get this all figured out and just go to the restaurant and say "here's the deal," so I'll work on the research. Thanks for helping me think about it.

posted by Miko 26 February | 17:28

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