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IRS issues 2003 value limits for premiums, quid pro quo rule

WASHINGTON (AFP eWire - Jan. 16, 2003) - To account for inflation and other factors, the Internal Revenue Service (IRS) has increased the limit on the value of insubstantial gifts given by charities to donors in exchange for contributions.

Under the federal quid pro quo rule, if donors receive a gift from a charity as a result of a contribution, they must subtract the fair market value of that gift from the charitable deduction they would take as a result of the contribution. For example, if a donor gave $500 to a charity, and in return received concert tickets valued at $120, the maximum deduction the donor could take for the contribution is $380 ($500 - $120 = $380). The charity also would be required to disclose the benefit on the charitable receipt.

However, the IRS has long ruled that certain gifts have so little value, or have such a small value in comparison to the size of the donor's contribution, that the donor receives only an 'insubstantial' benefit. In this case, the value of those gifts does not have to be counted against the deduction a donor might take.

For 2003, charities may give insubstantial gifts that have a value of $8 or less for any contribution of $40 or more, so long as the gifts bear the charity's name or logo.

In addition, charities can give away gifts or benefits with a higher value and avoid the quid pro quo rule so long as the benefit does not exceed $80, or 2 percent of the fair market value of the donor's contribution, whichever is less. If a donor gave $1,000 to a charity, for example, the maximum value of a gift or benefit that he or she could receive from the charity without falling under the quid pro quo rule is $20 (2 percent of $1,000 is $20, which is less than $80). Otherwise, the value of the benefit must be deducted from the deduction the donor would take for the contribution.

Fundraisers should not get forget that these quid pro quo regulations overlap with the two general rules related to substantiation and disclosure:

1) A donor is responsible for obtaining a written acknowledgment from a charity for any contribution of $250 or more before claiming a charitable deduction.

2) A charity is required to provide a written disclosure to a donor who receives goods or services in exchange for a single payment in excess of $75.

Thus, in the first example above of a donor giving $500 and receiving concert tickets worth $120, the donor would have to not only reduce the deduction to $380, but also obtain a written acknowledgment (receipt) from the charity about the contribution and a written disclosure regarding the value of the concert tickets.

For more information on the quid pro quo rule, substantiation and disclosure, go to http://www.irs.gov/pub/irs-pdf/p1771.pdf  (Acrobat Reader required). Members should note, however, that the limits listed in the document about the quid pro quo rule are from 2001, and the numbers referenced above are correct for 2003.

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