• What is tax deductible to the donor?
  
• What wording should we use on the solicitation?
  

A related question, regarding disclosure of the actual amount of money from a solicitation that will be used to directly support charitable purposes, falls under state regulation. Many other questions related to special events, bingo, and other fundraising activities also fall under state regulation. You may contact the Secretary of State or Office of the Attorney General in your state or the states in which you fundraise for information on state regulations for nonprofits. An annual survey of state laws regulating charitable solicitations may be obtained from the AAFRC Trust for Philanthropy (25 W. 43rd Street, New York, NY 10036, (212) 354-5799).

The U.S. Congress and the Internal Revenue Service have expressed concern about situations in which some charities, intentionally or unintentionally, have misled donors about the extent of the deductibility of their contributions. Furthermore, experience has shown that fundraising returns are better served in the long run by fair and accurate disclosure about deductibility, and by encouraging prospective donors to seek additional information from their tax accountants or from one of the references at the end of this article.

How to Determine the Fair Market Value of Fundraising Items
The following quotation is excerpted from Tax Planning and Compliance for Tax-Exempt Organizations: Forms, Checklists, Procedures by Jody Blazek:

• Contributors to nonprofit organizations have grown accustomed to receiving benefits in return for their gifts: dinner, entertainment, and prizes. Often, the proceeds of fund-raising events add directly to an organization's coffers because businesses and patrons donate the items of benefit offered to the attendees. Until 1988, a charity was neither expected nor required to assign value to such benefits, or to inform the givers that the ticket price is not fully deductible.
  
  Misconceptions and indecision plague fund-raisers because there is no absolute legal requirement underlying the IRS s request that an organization voluntarily furnish donors information in connection with fund-raising events, membership drives, and other revenue programs, when donors are given premiums, discounts, meals, prizes, or other valuable items in return for their donation. Ethical and tactical issues are involved.
  
  In a deceptively simple fashion, the Internal Revenue Code states that an income tax deduction is allowed for a contribution or gift to or for the use of qualified charitable organizations (IRC 170(c)). Neither the Code nor the regulations define contribution. The commonly understood definition of a contribution is a voluntary transfer without consideration. In other words, only a gift for which nothing is received in return is fully deductible.
  
  For example, a $25 meal provided during a $100 benefit reduces the deduction to $75. A $25 meal, plus $35 performance, plus a $20 chance for the door prize, would reduce the gift to $20. Fortunately, intangible recognition, such as having one's name placed on a building or donor listing, is, as a general rule, considered to be of incidental or tenuous benefit, and does not reduce the value of the gift (Reg. 53.4941 (d)-2(f)(2); Rev. Rul. 66-358, 1966-2 C.B. 216; Rev. Rul 73-407, 1973-2 C.B. 383).
  
  To add to the difficulty, items of tangible personal property given for resale in a charity auction or resale shop are also limited in their deductibility. Such property is only deductible to the extent that it is given to or for the use of the charity itself (IRC 170*e)(B)(i)). A work of art given to a museum to exhibit on its wall is used by the museum directly in its exempt programs, so the full value of the art is deductible. If instead, the work of art is given to an AIDS hospice for a benefit action, the deduction is limited to the giver's tax basis.

There are countless individual situations for determining the fair market value of items involved in fundraising appeals. Here are some examples for determining the fair market value of some such items:

Item Guideline for Fair Market Value:

• Meals at hotel or restaurant would be worth the price of the same meal in a dining room or at a restaurant, including drinks and tips.
  
• Attendance at a reception has the value of the food and drink served, but the intangible value of associating with other guests not valued.
  
• Ticket to a theater or dance performance equals the normal ticket price available to public.
  
• Bumper stickers, buttons, pens, and other low cost tokens--for gifts of $25 or more (adjusted with inflation from 1987 price index), the fair market value of such items, if each token cost less than $5 (again adjusted from 1987 levels), the fair market value of the token is zero and the contribution is fully deductible.

What Wording Should We Use on the Solicitation?
The following list provides a few examples of wording that might accompany solicitation for several fundraising events:

Event Cost Sample Wording:

Fundraising luncheon at $50.00 per ticket; $100 to be a sponsor, etc.

The invitation to the luncheon states, "$25.00 of each ticket is not tax deductible," or "Contributions over the value of this luncheon and entertainment ($25) are tax deductible."

An Auction

A catalog is issued listing each item and the fair market value for each item. The catalog states, "Purchasing an item for more than the fair market value as listed in this catalog results in a deduction for amounts above the price listed."

Raffle ticket priced at $1

Not a charitable deduction. Do not state that the purchase of the ticket is a "donation."

Membership where a $35 minimum includes newsletter and a $75 membership includes umbrella with logo

The newsletter's subscription price to non-members is $15. "$15 of your $35 membership is not tax deductible as a charitable contribution." The umbrella's fair market value is $10. "$25 of your $75 membership is not deductible as a charitable contribution."

Jody Blazek comments, "Since an exempt organization is not required to report the deductible portion of its contributor's gifts and since the burden of proving value is placed on the contributor, some charities choose not to comply with the IRS request that benefits be valued and reported voluntarily. Some of these charities take a silent approach and disclose no information; others continue to use the old refrain, deductions to the extent allowed by law, which may ironically serve as a red flag to the IRS. Most individual donors wish to comply with the tax laws and welcome cooperation on the charity's part. On the other hand, reduction of tax benefit is perceived to discourage giving. (This is clearly true in the case of appreciated property gifts of stock, art, and land.) Fortunately, most charities are making the ethical choice to comply and furnish deductibility information. They are happy to report no significant reductions in giving levels as a consequence. Nonetheless, donor goodwill is both enhanced and crippled by voluntarily furnishing Fair Market Value information. Some contributors want it, some do not, and therein lies the dilemma."

For More Information:
Tax Planning and Compliance for Tax-Exempt Organizations: Forms, Checklists, Procedures, 1993, by Jody Blazek. John Wiley & Sons, 605 Third Avenue, 10th Floor, New York, NY 10158, (800) 225-5945.