Article Archives >> To the Point

For our charity auction, a donor provided a getaway sailing weekend complete with meals, water taxi and accommodations on the sailboat. The donor also captained the boat for the trip. The trip sold for $2400. What can the donor claim as a charitable deduction?

For the donor who supplied the boat, the meals and the captaincy, the only deduction is for the out-of-pocket costs of the trip, such as food, fuel or docking fees. The captaincy and use of the boat are services that are not deductible.

For the purchaser of the trip, any deduction is limited to the excess of the amount paid over the fair market value of the trip. Charities will ordinarily make a good faith estimate of the value of items sold in actions. Purchasers may deduct only that amount of the payment that exceeds the worth of what they purchase. (See Ready Reference Page: “Charities Must Set Value on 'Quid Pro Quo' Gifts.”)

Comments from our Readers
Regarding the sentence "Charities will ordinarily make a good faith estimate of the value of items sold in actions." I have verified with two reputable CPA's who specialize in nonprofit accounting that charities are not to provide donors with estimates of fair market value for the gifts. Your response seems to indicate that they should. Both auditors were very strong about this point, stating the IRS does not want charities to assign values to gifts. Please comment on this. –Tish Mogan, Pennsylvania Association of Nonprofit Organizations.

This is part of the IRS’s asymmetrical warfare on the world.

Your CPA’s are correct that the charity should not provide estimates of value to the donor’s of the stuff for the auction.

My comment was related to the charity’s providing an estimate of fair market value to the purchasers of the stuff. The Treasury Regulations contain an example dealing the deductibility of payments for purchases from charity auctions. Treas. Reg. §1.170A-1(h)(5) Example 2. The example specifically discusses the charity making a good faith estimate of the value of things being sold at the auction and the donor deducting only that amount above the charity's estimate of the fair market value.

The auction situation and the annual fundraising dinner type situation, in which there are going to be quid pro quo payments, require the good faith estimate of value by the charity. The receipt of donations without a quid pro quo does not.

The fair market value estimate of the auction item, by the way, does not necessarily equate to the amount the donor can deduct for the contribution. If the value has appreciated, the donor can't deduct the fair market value because the stuff is not being used in the charitable program of the charity selling it. If it is a service, like the sailing trip, it isn't deductible at all (except for out of pocket costs). --Don Kramer