Q: Our youth group hosted a spaghetti dinner to raise money for hurricane disaster relief. How do we determine what is a donation and what is payment for the spaghetti dinner, or can a donor’s entire check for the dinner work as a tax-deductible donation?
A: If the understanding with the participants was that the “price” of the dinner was a donation of any amount, the Internal Revenue Service considers this to be a quid pro quo arrangement. Under such an arrangement, the value of the dinner (not the dinner’s actual cost) is what you use to determine the nondeductible amount. In making that determination, the law allows you to make a “good faith estimate.” For instance, you could say that the value of the dinner is worth what a comparable meal would cost at Fazoli’s.
However, if the understanding was that it was a free dinner and an “ask” was made for contributions at the dinner, it is not a quid pro quo arrangement, and the entire amount donated by each participant is tax deductible.
Note that the requirement to issue a proper receipt for the quid pro quo arrangement applies only to payments by donors of more than $75. Further, the law allows you to ignore the quid pro quo arrangement if the value of items received in exchange is 2 percent or less of the gift amount—up to $107 for the value of items received in exchange. The amount is inflation-adjusted each year.
For IRS guidelines on issuing a proper receipt for a quid pro quo arrangement, go to IRS.gov and search “quid pro quo contributions.” You’ll also find guidelines for issuing receipts for quid pro quo arrangements, along with guidelines for issuing receipts for donations over $250 that aren’t quid pro quo, in chapter 8 of the 2018 Church & Clergy Tax Guide.