Many organizations host a fundraising event to raise money to support their mission but often times there is a lot of confusion on what they need to report to the donor.

There are multiple sources of support that is generated from a fundraising event. The most common source of support, is ticket sales. An organization must provide a written disclosure statement to a donor who makes a payment exceeding $75 partly as a contribution and partly for goods and services provided by the organization. A contribution made by a donor in exchange for goods or services is known as a quid pro quo contribution.

What portion of the event ticket is an actual contribution? Let’s take a look at an example:

A donor gives a charitable organization $100 in exchange for a concert ticket with a fair market value of $40 (meal). In this example, the donor’s tax deduction may not exceed $60. Because the donor’s payment (quid pro quo contribution) exceeds $75, the charitable organization must provide a disclosure statement to the donor, even though the deductible amount doesn’t exceed $75.

What is the disclosure statement?

The written disclosure statement must be made in writing and must be made in a manner that is likely to come to the attention of the donor. For example, a disclosure in small print within a larger document may not satisfy this requirement. The disclosure statement must be provided with the receipt or the solicitation of the quid pro quo contribution.

The disclosure must include:

• A statement that the amount of the contribution that is deductible for federal income tax purposes is limited to the excess of money (and the fair market value of property other than money) contributed by the donor over the value of goods or services provided by the organization
• A good-faith estimate of the fair market value of the goods or services (i.e. meal, entertainment, etc.)

Penalties

If a charity fails to comply with the disclosure rule and does not have reasonable cause for the failure, it is subject to a $10 per contribution penalty (capped at $5,000 per fund-raising event or mailing). The penalty applies when the organization fails to make any disclosure or when it makes a disclosure that is incomplete or inaccurate.

Although not required for quid pro quo donations of $75 or less, the IRS presumably still expects nonprofit organizations to voluntarily disclose to their donors how much of the contribution is deductible as a charitable contribution.

Questions on the whether you are meeting this requirement? Reach out to the KLR Not-for-Profit Team.