• The IRS has issued further guidance on the deductibility of contributions to charities that provide token “premiums” to donors. Over the past few years, Congress has expressed concern that charities do not accurately inform donors of the extent to which contributions are deductible. Specifically, charities have not been advising donors that their contributions are deductible only to the extent that they exceed the fair market value of any premium received in exchange. In response, the IRS sent “Publication 1391” to over 400,000 charities in 1988. Publication 1391 asks charities for help in informing contributors more accurately about the deductibility of contributions made in connection with fund-raising events and programs. Specifically, it asks charities to determine the fair market value of the benefits offered for contributions in advance of a solicitation and to state in the solicitation (and in any receipt issued in connection with a contribution) how much is deductible and how much is not. Over the past few years, several charities have complained that these requirements are overly burdensome, especially for premiums of token value. In a recent revenue procedure, the IRS agreed with some of these concerns, noting that “a benefit may be so inconsequential or insubstantial that the full amount of the contribution is deductible,” and accordingly “charities offering certain small items or other benefits of token value may treat the benefits as having insubstantial value so that they may advise contributors that contributions are fully deductible.” Under new guidelines published by the IRS, a premium is considered “insubstantial” if (1) its fair market value is not more than 2% of the contribution or $50, whichever is, less or (2) the contribution is $25 or more (adjusted annually for inflation—the 1990 figure is $27.26) and the only premium received in exchange is a “token item” (i.e., bookmark, calendar, key chain, mug, poster, tee shirt) bearing the charity’s name or logo. The cost (not fair market value) of all premiums received during the year by a donor must not exceed $5 (adjusted annually for inflation—the 1990 amount is $5.45). If either of these two “safe harbors” exists, the charity can advise the donor that the full value of his or her contribution is deductible. If a charity offers only “insubstantial” benefits in return for donations, fund-raising literature should include a statement to the effect that “under Internal Revenue Service guidelines the estimated value of the benefits received is not substantial; therefore the full amount of your payment is a deductible contribution [if you itemize your deductions on Schedule A].” The guidelines emphasize that these safe harbor rules apply only in the context of fund-raising campaigns in which a charity advises donors (who do not qualify for either safe harbor exception) of the fair market value of premiums and the deductible portion of their contributions. Revenue Procedure 90-12.

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