Someone on the board of our 501(c)(3) charity feels we are required to send a letter to each person who bought a ticket for our recent fundraiser to let them know the actual cost of the dinner so they can write off the "donation." The same person feels we have to notify silent auction winners of the actual value of the items they bought compared to the payment. Are we required by law to do this? I can understand having that information available if they ask, but to send out 300 letters...yikes!
Your board member is basically correct. This is the “quid pro quo” rule. In general, if a donor receives goods or services (other than certain low cost items of little value) in return for a contribution, the donor may deduct only the excess of the payment over the value of the goods and services received in return. The comparison is between the payment and the value received, not the cost to the charity of providing the value. Even if the dinner did not cost the charity anything, the donor would be treated as having received the value of the event. In an auction, the payment may be less than the value of the item purchased, in which case no deduction would be permitted because there was no payment in excess of the value received. But if the payment is more than the value, the purchaser is entitled to claim a deduction for the overage.
The Tax Code requires the organization to notify the donor of these amounts if the payment to the charity is more than $75, and the organization can be subject to penalties if it fails to do so. You are not legally required to notify the donor if the payment is less than $75, but most charities do so as a matter of good practice. You can deal with the dinner tickets by providing information in the solicitation request, but since you want to thank your supporters anyway, it isn’t much harder to tell them how much they may deduct for the contribution when you send the thank-you letter. (See Ready Reference Page: “Charities Must Set Value on ‘Quid Pro Quo’ Gifts.”)