We recently attended a charity function (car show) which cost $100 per person. It was advertised as completely tax deductible. We were treated to an open bar, food stations, free Valet Parking, and a drawing was held for leases on a new car. Should that entire admission price be tax deductible? I was told that it was all deductible because the event was completely underwritten.
What you were told was wrong and your instincts are correct.
The Tax Code provides that a charity must advise a payer/donor of the value of goods and services received in a situation like this, and the payer/donor may deduct only the amount of the payment that exceeds the fair market value of the goods and services received in return. The charity must make a good faith effort to value the goods and services. (See Ready Reference Page: “Charities Must Set Value on 'Quid Pro Quo' Gifts.")
The payment is not fully deductible just because everything was contributed to the charity. The underwriters or other contributors of food and drink may have a separate charitable contribution deduction for their gifts to the charity, but the payer/donor may deduct only the amount above the value of the goods or services received in return for the payment.
With a payment in excess of $75, the charity is required by law to advise the patrons of the value of the goods or services and can be fined for failure to do so. The charity may also have a problem with an illegal lottery, but that is another issue.
Monday, December 12, 2011
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