In several articles on sponsorships, you say that if the acknowledgment takes the form of advertising, the value of the advertising has to be deducted from the payment before determining the amount of charitable contribution. How do you determine the value of the advertisement? We provide a booklet, which serves as sort of a program, for our annual garden tour fundraiser. Companies buy ads but sponsors get a free ad. Is the amount charged to those who buy the ad the value for the sponsor's ad?
The fair market value of an item is generally the amount a willing buyer will pay to a willing seller for an item or a service when neither is under pressure or is obligated to make a deal. Assuming that you are comparing the same size and position of the ads, you probably have a pretty good estimate of market value that has to be deducted from the sponsorship. You should be sure that you are deducting only for ads that are really ads, however. You don’t have to deduct for mere acknowledgments, or “congratulations from ABC Company” notices, or business card presentations. You only have to deduct for real advertisements, such as those that use comparative or pricing language or a call to action.
Organizations that don’t sell space in their publications or on their website may have to do a little more research to come up with a value. But the IRS is not likely to contest the determination if it is made in good faith.
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