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Deductions when proceeds benefit charity?

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Deductions when proceeds benefit charity?

In one of your questions last week, you wrote about sales in which the seller says "a portion of the proceeds are to benefit" a certain charity. How would the seller give receipts to those wanting them? They'd have to say what % of their donation is going to a charity, right?

Probably not. In most of the sales in which the seller says that a portion of the proceeds will go to charity, the sale is at fair market value for the products or services being sold. In that case, there is no direct gift from the purchaser to the charity, although the seller uses the charitable pitch to increase the volume of sales. A purchaser may claim a charitable contribution deduction only when the payment exceeds the value of the goods or services received in return. That is much more likely to occur in fund raising activities conducted by the charity itself, such as an annual banquet, in which tickets cost significantly more than the value of the goods or services being provided. (See Ready Reference Page: Charities Must Set Value on 'Quid Pro Quo' Gifts.”
Thanks to Eric Vieland of Epstein Becker & Green, P.C. in New York for this valuable expansion of this issue.
Commercial retailers and other similar parties engaging in these types of promotions are regulated under the charitable solicitation acts of several states. Most of the acts refer to such parties as "commercial co-venturers." Some of the solicitation acts require that a copy of the contract between the charity and the retailer be on file with the Attorney General, that the contract states the precise formula for calculating the retailer's contribution to the charity, and that the retailer use that same formula in all representations to the public about exactly what they mean when they say "a portion of the proceeds will benefit _________." 
People should check local law before entering any type of promotional arrangement between a charity and a retailer. Perhaps counter intuitively, it's the charity rather than the retailer that often bears most of the duty.
Thursday, February 14, 2008

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