The Quid Pro Quo rules for calculating the charitable deduction portion of the purchase of a ticket for which the payor gets goods or services in return provide that the payor may deduct only that portion of the payment price that exceeds the fair market value of the event.  (See Ready Reference Page: “Charities Must Set Value of ‘Quid Pro Quo’ Gifts”). You have to estimate the fair market value of what a person would pay to receive the same benefits in the commercial market.  You can’t go by total costs or cost of the food and drink alone. You might get everything given to you so that you would have no cost and everyone would get to deduct the entire ticket price.  Or you might have a bunch of freebies, like board members, real or potential donors, or local government officials, who would raise the total cost for everyone else and reduce their deduction.  Total cost may help you estimate the fair market value, but the FMV is the estimate of what patrons would have to pay for the total experience, including the ambiance of the location, entertainment and probably some of the other things that cost $95,000 more than the food and drink.  You don’t want to set FMV below actual cost person in order to increase the allowable deduction.  But there is no absolute right number, and as long as your effort is a good faith one, you will be fine.

Your business sponsor could deduct the payment less the value of the 20 tickets, whether or not they were actually used.  The only way to get a charitable deduction for the value of the tickets would be to disavow the right to use them in advance, like the donor who declines the CEO’s new book that is available free to all donors who pay above a certain amount for membership dues.  The sponsor may also have to consider the value of advertising to 324 other participants if the sponsor gets what the IRS considers advertising and not mere acknowledgment of the sponsorship.  (See Ready Reference Page: “IRS Finalizes Regs Covering Sponsorship”)  If the advertising value is significant (more than 2% of the amount of the payment), the value should be deducted.  The sponsor doesn’t particularly care, however, because it can normally deduct the payment as an advertising business expense even if it isn’t a charitable contribution.  The difference lies primarily in how the charity reports the income, whether as contribution income or as other income, on its Form 990 tax return.