[Federal Register Volume 60, Number 150 (Friday, August 4, 1995)]
[Proposed Rules]
[Pages 39896-39902]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-19063]
=======================================================================
-----------------------------------------------------------------------
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 1
[IA-44-94]
RIN 1545-AS94
Deductibility, Substantiation, and Disclosure of Certain
Charitable Contributions
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Notice of proposed rulemaking and notice of public hearing.
-----------------------------------------------------------------------
SUMMARY: This document contains proposed regulations that provide
guidance regarding the allowance of certain charitable contribution
deductions, the substantiation requirements for charitable
contributions of $250 or more, and the disclosure requirements for quid
pro quo contributions in excess of $75. The proposed regulations will
affect organizations described in section 170(c) and individuals and
entities that make payments to those organizations.
DATES: Written comments must be received by November 2, 1995. Requests
to appear and outlines of oral comments to be presented at the public
hearing scheduled for November 1, 1995, must be received by October 11,
1995.
ADDRESSES: Send submissions to: CC:DOM:CORP:T:R(IA-44-94), Room 5228,
Internal Revenue Service, POB 7604, Ben Franklin Station, Washington,
D.C. 20044. In the alternative, submissions may be hand delivered
between the hours of 8 a.m. and 5 p.m. to: CC:DOM:CORP:T:R(IA-44-94),
Courier's Desk, Internal Revenue Service, 1111 Constitution Avenue,
N.W., Washington, D.C. The Public Hearing scheduled for November 1,
1995 at 10:00 a.m., will be held in the IRS Auditorium, 7th floor, 1111
Constitution Avenue, N.W., Washington, D.C.
FOR FURTHER INFORMATION CONTACT: Concerning the regulations, Jefferson
K. Fox, 202-622-4930; concerning submissions and the hearing, Christina
Vasquez, 202-622-6803. These are not toll-free numbers.
SUPPLEMENTARY INFORMATION:
Paperwork Reduction Act
The collections of information contained in this notice of proposed
rulemaking have been submitted to the Office of Management and Budget
for review in accordance with the Paperwork Reduction Act (44 U.S.C.
3504(h)). Comments on the collections of information should be sent to
the Office of Management and Budget, Attn: Desk Officer for the
Department of the Treasury, Office of Information and Regulatory
Affairs, Washington, D.C. 20503, with copies to the Internal Revenue
Service, Attn: IRS Reports Clearance Officer, PC:FP, Washington, DC
20224.
The collections of information are in Secs. 1.170A-13(f)(1),
(f)(10), (f)(14), and 1.6115-1. This information is required by the IRS
to determine the deductibility of certain charitable contributions. The
likely respondents are individuals or households, business or other
for-profit institutions, nonprofit institutions, and small businesses
or organizations.
Estimated total annual recordkeeping burden: 100,000 hours.
Estimated average annual burden per recordkeeper: .10 hour.
Estimated number of recordkeepers: 1,000,000.
Estimated total annual reporting burden: 1,875,000 hours.
Estimated average burden per respondent: 2.5 hours.
Estimated number of respondents: 750,000.
Estimated frequency of responses: On occasion.
Background
This document contains proposed amendments to the Income Tax
Regulations (26 CFR part 1) that provide guidance under sections
170(a), 170(f)(8), and 6115 of the Internal Revenue Code of 1986.
Sections 170(f)(8) and 6115 were added to the Code by sections
13172 and 13173 of the Omnibus Budget Reconciliation Act of 1993, Pub.
L. No. 103-66, 107 Stat. 455, 1993-3 C.B. 43. Temporary regulations (TD
8544) and a notice of proposed rulemaking by cross-reference to
temporary regulations under section 170(f)(8) were published in the
Federal Register for May 27, 1994 (52 FR 27458, 27515). The temporary
and proposed regulations primarily address contributions made by
payroll deduction and a donor's receipt of goods or services with
insubstantial value. A public hearing was held on November 10, 1994. On
March 22, 1995, the Service released Notice 95-15, which was published
in 1995-15 I.R.B., dated April 10, 1995. Notice 95-15 provides
transitional relief (for 1994) from the substantiation requirement.
Explanation of Statutory Provisions
Section 170(a) allows a deduction for certain charitable
contributions to or for the use of an organization described in section
170(c). Under section 170(f)(8),
[[Page 39897]]
taxpayers who claim a deduction for a charitable contribution of $250
or more are responsible for obtaining from the donee organization, and
maintaining in their records, substantiation of that contribution. See
H.R. Conf. Rep. 2264, 103d Cong., 1st Sess. 565 (1993). Specifically,
section 170(f)(8) provides that no charitable contribution deduction
will be allowed under section 170(a) for a contribution of $250 or more
unless the taxpayer substantiates the contribution with a
contemporaneous written acknowledgment from the donee organization.
Section 170(f)(8)(B) provides that an acknowledgment meets the
requirements of that section if it includes the following information:
(1) the amount of cash paid and a description (but not necessarily the
value) of any property other than cash transferred to a donee
organization; (2) whether or not the donee organization provided any
goods or services in consideration for the cash or property; and (3) a
description and good faith estimate of the value of any goods or
services provided by the donee organization in consideration for the
cash or property. A written acknowledgment is contemporaneous, within
the meaning of section 170(f)(8)(C), if it is obtained on or before the
earlier of: (1) the date the taxpayer files its original return for the
taxable year in which the contribution was made, or (2) the due date
(including extensions) for filing the taxpayer's original return for
that year.
Section 170(f)(8) does not prescribe a format for the written
acknowledgment. Any document that contains the required information,
including but not limited to a letter, postcard, computer-generated
form, or tax form, is an acceptable means of providing a taxpayer with
a written acknowledgment. For example, a private foundation may use a
copy of its Form 990-PF, Return of Private Foundation, as a written
acknowledgment for a taxpayer's charitable contribution of $250 or more
if it contains the necessary information. Any documents that are used
as a written acknowledgment of a taxpayer's charitable contribution
must be contemporaneous within the meaning of section 170(f)(8)(C).
Section 6115 generally requires an organization described in
section 170(c) that receives a ``quid pro quo contribution'' in excess
of $75 to provide a written disclosure statement to the donor. The
written disclosure statement must contain the following information:
(1) a statement that the deductibility of the donor's contribution is
limited to the excess of the amount of any money or the value of any
property contributed by the donor over the value of the goods or
services provided to the donor by the organization, and (2) a good
faith estimate of the value of the goods or services provided by the
organization. Section 6115(b) defines a quid pro quo contribution as a
payment made partly as a contribution and partly in consideration for
goods or services provided by the organization.
Explanation of Regulatory Provisions
Deductibility of a Payment in Exchange for Consideration
In United States v. American Bar Endowment, 477 U.S. 105 (1986),
the Supreme Court set forth a two-part test for determining whether a
payment that is partly in consideration for goods or services is
deductible under section 170(a). First, a payment to an organization
described in section 170(c) is deductible only if, and to the extent
that, the payment exceeds the fair market value of the benefits
received. Second, the excess payment must be made with the intent to
make a charitable contribution. See also Rev. Rul. 67-246, 1967-2 C.B.
104.
The proposed regulations adopt this two-part test for determining
whether a payment is deductible under section 170(a). Specifically, the
regulations provide that, in order for a charitable contribution
deduction to be allowed, a taxpayer must intend to make a payment in an
amount that exceeds the fair market value of the goods or services
received in return, and must actually make a payment in an amount that
exceeds that fair market value.
Certain Goods or Services Disregarded
Under current law, a taxpayer who receives membership benefits in
return for a payment to an organization described in section 170(c) may
not claim a charitable contribution deduction for more than the amount
by which the payment exceeds the fair market value of the membership
benefits. United States v. American Bar Endowment, 477 U.S. 105 (1986).
See also Rev. Rul. 68-432, 1968-2 C.B. 104; Rev. Rul. 67-246, 1967-2
C.B. 104. Accordingly, taxpayers and donee organizations must determine
the fair market value of any membership benefits the donee organization
provides to its donors.
It is often difficult to value membership benefits, especially
rights or privileges that are not limited as to use, such as free or
discounted admission or parking, and gift shop discounts. In the course
of preparing these proposed regulations, the IRS and the Treasury
Department have considered the extent of the difficulty of valuation
and have concluded that it is appropriate to provide limited relief
with respect to certain types of customary membership benefits while
preserving the IRS's ability to administer the law fairly and
consistently. Accordingly, the proposed regulations provide that both
the donee organization and the donor may disregard certain membership
benefits when they are provided in return for a payment to the
organization.
Section 1.170A-13T(a) already allows donors and donee organizations
to disregard goods or services that are treated as having insubstantial
value under existing IRS guidelines. See Rev. Proc. 90-12, 1990-1 C.B.
471, and Rev. Proc. 92-49, 1992-1 C.B. 987. The guidelines cover low
cost articles (items costing $6.60 or less for 1995), newsletters that
are not commercial quality publications, and benefits worth 2% or less
of a payment, up to a maximum of $66 for 1995. The substance of this
section has been incorporated into section 1.170A-13(f)(8)(i).
Under the proposed regulations, other benefits may be disregarded
only if they are given as part of an annual membership offered in
return for a payment of $75 or less and fall into one of two
categories. The first category is admission to events that are open
only to members and for which the donee organization reasonably
projects that the cost per person (excluding allocable overhead) for
each event will be less than or equal to the standard for low cost
articles under section 513(h)(2)(C) ($6.60 for 1995). An example is a
modest reception where light refreshments are served to members of a
donee organization before an event. The second category is rights or
privileges that members can exercise frequently during the membership
period. An example is free admission to a museum.
The items described in the previous two paragraphs may be
disregarded for purposes of determining whether the taxpayer has made a
charitable contribution, the amount of any charitable contribution that
has been made, and whether any goods or services have been provided
that must be substantiated under section 170(f)(8) or disclosed under
section 6115. Thus, the effect of these provisions is broader than that
of the temporary regulations, which provided less comprehensive relief
and then only for items of insubstantial value.
[[Page 39898]]
Goods or Services Provided to Donor's Employees
The proposed regulations also contain relief where donee
organizations provide goods or services to the employees of their
donors. Goods or services that may be disregarded for the purposes
specified above when provided directly to a donor may also be
disregarded for the same purposes when provided to a donor's employees.
Any other goods or services provided to the donor's employees must
be taken into account for purposes of calculating any charitable
contribution the donor claims as a deduction. If a contemporaneous
written acknowledgment of the donor's contribution is required under
section 170(f)(8), it must include a description of these goods or
services. However, the proposed regulations provide that the
contemporaneous written acknowledgment may omit the otherwise required
good faith estimate of the value of these goods or services; similarly,
the proposed regulations provide that a written disclosure statement
required by section 6115 for a payment made in exchange for these goods
or services may include a description of them in lieu of the otherwise
required good faith estimate of their value.
Good Faith Estimate
For purposes of sections 170 and 6115, the proposed regulations
define a good faith estimate of the value of goods or services provided
by an organization described in section 170(c) as an estimate of the
fair market value of those goods or services. The fair market value of
goods or services may differ from their cost to the donee organization.
The organization may use any reasonable methodology that it applies in
good faith in making the good faith estimate. However, a taxpayer is
not required to determine how the donee organization made the estimate.
The proposed regulations further provide that a donee organization
may make a good faith estimate of the value of goods or services that
are not available in a commercial transaction by reference to the fair
market value of similar or comparable goods or services. Goods or
services may be similar or comparable even though they do not have the
unique qualities of the goods or services that are being valued.
Reliance on Donee Estimates
The proposed regulations provide that a taxpayer generally may
treat an estimate of the value of goods or services as the fair market
value for purposes of section 170(a) if the estimate is in a
contemporaneous written acknowledgment (as required by section
170(f)(8)) or a written disclosure statement (as required by section
6115). Thus, a taxpayer that makes a payment to an organization
described in section 170(c) and receives an item in return generally
may rely on the organization's estimate of the value of the item in
calculating its charitable contribution deduction if the estimate is
included in a contemporaneous written acknowledgment or a written
disclosure statement.
However, a taxpayer may not treat an estimate as the fair market
value of the goods or services if the taxpayer knows, or has reason to
know, that such treatment is unreasonable. For example, if the taxpayer
is a dealer in the type of goods or services it receives from an
organization described in section 170(c), or if the goods or services
are readily valued, it is unreasonable for the taxpayer to treat the
donee organization's estimate as the fair market value of the goods or
services if that estimate is in error and the taxpayer knows, or has
reason to know, the fair market value of the goods or services.
An estimate of the value of goods or services in a contemporaneous
written acknowledgment or written disclosure statement is not in error
if the estimate is within the typical range of retail prices for the
goods or services. For example, if an organization provides a book in
exchange for a $100 payment, and the book is sold at retail prices
ranging from $18 to $25, the taxpayer may rely on any estimate of the
organization that is within the $18 to $25 range.
Substantiation of Contributions to a Split Interest Trust
Section 170(f)(8)(E) provides the Secretary with authority to issue
regulations that relieve taxpayers, in appropriate cases, from some or
all of the requirements of section 170(f)(8).
The grantor of a charitable lead trust, a charitable remainder
annuity trust, or a charitable remainder unitrust is not required to
designate a specific organization as the charitable beneficiary at the
time the grantor transfers property to the trust. As a result, there is
often no designated donee organization available to provide a
contemporaneous written acknowledgment to a taxpayer. In addition, even
if a specific beneficiary is designated, the designation is often
revocable. In contrast, a pooled income fund is created and maintained
by one charitable organization to which the remainder interest is
contributed.
The IRS and the Treasury Department believe that for these reasons
it is appropriate to exempt from the requirements of section 170(f)(8)
transfers of property to charitable lead trusts, charitable remainder
annuity trusts, or charitable remainder unitrusts while not exempting
transfers to pooled income funds.
Substantiation of Out-of-Pocket Expenses
Section 1.170A-1(g) provides that an unreimbursed expenditure made
incident to the rendition of services to a donee organization may be a
deductible charitable contribution. Some taxpayers may make individual
unreimbursed expenditures of $250 or more (such as for a plane ticket)
that will require substantiation under section 170(f)(8). The IRS and
the Treasury Department recognize that a donee organization typically
has no knowledge of the amount of out-of-pocket expenditures incurred
by a taxpayer, and therefore, would have difficulty providing taxpayers
with substantiation of unreimbursed expenditures.
To address this concern, the proposed regulations provide that
where a taxpayer has individual unreimbursed expenditures made incident
to the rendition of services and of an amount requiring substantiation,
the expenditures may be substantiated by the donor's normal records
(see Sec. 1.170A-13(a)) and an abbreviated written acknowledgment
provided by the donee organization. This written acknowledgment from
the donee organization must contain a description of the services
provided by the donor, the date the services were provided, whether or
not the donee organization provided any goods or services in return
and, if the donee organization provided any goods or services, a
description and good faith estimate of the fair market value of those
goods or services. This written acknowledgment must be obtained by the
taxpayer on or before the earlier of the date the taxpayer files its
original return for the taxable year in which the contribution was
made, or the due date (including extensions) for filing the taxpayer's
original return for that year.
Contributions Made by a Partnership or an S Corporation
The proposed regulations provide that if a partnership or an S
corporation makes a charitable contribution of $250 or more, the
partnership or S corporation will be treated as the taxpayer for
purposes of section 170(f)(8). Therefore, the partnership or S
[[Page 39899]]
corporation is required to obtain a contemporaneous written
acknowledgment for each charitable contribution of $250 or more that it
reports on its income tax return (regardless of whether any partner's
or shareholder's distributive share of the contribution is less than
$250). Because the partnership or S corporation must satisfy the
requirements of section 170(f)(8) in order to list charitable
contributions of $250 or more on the schedules provided to its partners
or shareholders, the partners and shareholders are not required to
obtain any additional contemporaneous written acknowledgments before
taking a deduction for their allocable shares of the partnership's or S
corporation's charitable contribution.
Contributions Made by Payroll Deduction
These proposed regulations reserve two paragraphs so that the
balance of the temporary and proposed regulations published in the
Federal Register for May 27, 1994, may be incorporated into
Sec. 1.170A-13(f) upon finalization.
Proposed Effective Date
These regulations are proposed to be effective on the date they are
published in the Federal Register as final regulations. Taxpayers may,
however, rely on the proposed regulations for contributions made on or
after January 1, 1994.
Special Analyses
It has been determined that this notice of proposed rulemaking is
not a significant regulatory action as defined in EO 12866. Therefore,
a regulatory assessment is not required. It has also been determined
that section 553(b) of the Administrative Procedure Act (5 U.S.C.
chapter 5) and the Regulatory Flexibility Act (5 U.S.C. chapter 6) do
not apply to these regulations and, therefore, a Regulatory Flexibility
Analysis is not required. Pursuant to section 7805(f) of the Internal
Revenue Code, this notice of proposed rulemaking will be submitted to
the Chief Counsel for Advocacy of the Small Business Administration for
comment on its impact on small businesses.
Comments and Public Hearing
Before the proposed regulations are adopted as final regulations,
consideration will be given to any written comments (a signed original
and eight copies) that are submitted timely to the IRS. All comments
will be available for public inspection and copying.
A public hearing has been scheduled for November 1, 1995, at 10:00
a.m. in the IRS Auditorium, 7th floor, 1111 Constitution Avenue, N.W.,
Washington, D.C. Because of access restrictions, visitors will not be
admitted beyond the Internal Revenue Building lobby more than 15
minutes before the hearing is scheduled to begin.
The rules of 26 CFR 601.601(a)(3) apply to the hearing.
Persons who wish to present oral comments at the hearing must
submit written comments by November 2, 1995 and submit an outline (a
signed original and eight copies) of the topics to be discussed and the
time to be devoted to each topic by October 11, 1995.
A period of 10 minutes will be allotted to each person for making
comments.
An agenda showing the scheduling of the speakers will be prepared
after the deadline for receiving outlines has passed. Copies of the
agenda will be available free of charge at the hearing.
Drafting Information
The principal author of these regulations is Rosemary DeLeone,
Office of the Assistant Chief Counsel (Income Tax and Accounting),
Internal Revenue Service. However, other personnel from the IRS and the
Treasury Department participated in their development.
List of Subjects in 26 CFR Part 1
Income taxes, Reporting and recordkeeping requirements.
Proposed Amendments to the Regulations
Accordingly, 26 CFR part 1 is proposed to be amended as follows:
PART 1--INCOME TAXES
Paragraph 1. The authority citation for part 1 is amended by adding
a new entry for section 1.170A-1 and revising the entry for section
1.170A-13 to read as follows:
Authority: 26 U.S.C. 7805. Section 1.170A-1 also issued under 26
U.S.C. 170(a). Section 1.170A-13 also issued under 26 U.S.C.
170(f)(8). * * *
Par. 2. Section 1.170A-1 is amended as follows:
1. Paragraph (h) is redesignated as paragraph (j).
2. Paragraph (i) is redesignated as paragraph (k) and is revised.
3. Paragraph (h) is added.
4. Paragraph (i) is added and reserved.
The additions and revisions read as follows:
Sec. 1.170A-1 Charitable, etc., contributions and gifts; allowance of
deduction.
* * * * *
(h) Payment in exchange for consideration--(1) Burden on taxpayer
to show that all or part of payment is a charitable contribution or
gift. No part of a payment that a taxpayer makes to or for the use of
an organization described in section 170(c) that is in consideration
for goods or services (as defined in Sec. 1.170A-13(f)(5)) is a
contribution or gift within the meaning of section 170(c) unless the
taxpayer--
(i) Intends to make a payment in an amount that exceeds the fair
market value of the goods or services; and
(ii) Makes a payment in an amount that exceeds the fair market
value of the goods or services.
(2) Limitation on amount deductible--(i) In general. The charitable
contribution deduction under section 170(a) for a payment a taxpayer
makes partly in consideration for goods or services may not exceed the
excess of--
(A) The amount of any cash paid and the fair market value of any
property (other than cash) transferred by the taxpayer to an
organization described in section 170(c); over
(B) The fair market value of the goods or services the organization
provides in return.
(ii) Special rules. For special limits on the deduction for
charitable contributions of ordinary income and capital gain property,
see section 170(e) and Secs. 1.170A-4 and 1.170A-4A.
(3) Certain goods or services disregarded. For purposes of section
170(a) and paragraphs (h)(1) and (h)(2) of this section, goods or
services described in Sec. 1.170A-13(f)(8)(i) or Sec. 1.170A-
13(f)(9)(i) are disregarded.
(4) Donee estimates of the value of goods or services may be
treated as fair market value--(i) In general. For purposes of section
170(a), a taxpayer may rely on either a contemporaneous written
acknowledgment provided under section 170(f)(8) and Sec. 1.170A-13(f)
or a written disclosure statement provided under section 6115 for the
fair market value of any goods or services provided to the taxpayer by
the donee organization.
(ii) Exception. A taxpayer may not treat an estimate of the value
of goods or services as their fair market value if the taxpayer knows,
or has reason to know, that such treatment is unreasonable. For
example, if the taxpayer knows, or has reason to know, that there is an
error in an estimate provided by an organization described in section
170(c) pertaining to goods or services that have a readily
ascertainable value, it is unreasonable for the taxpayer to treat the
estimate as the fair market value of the goods or services. Similarly,
if the taxpayer is a
[[Page 39900]]
dealer in the type of goods or services provided in consideration for
its payment and knows, or has reason to know, that the estimate is in
error, it is unreasonable for the taxpayer to treat the estimate as the
fair market value of the goods or services.
(5) Examples. The following examples illustrate the rules of this
paragraph (h).
Example 1. Certain goods or services disregarded. Taxpayer makes
a $50 payment to Charity B, an organization described in section
170(c), in exchange for a family membership. The family membership
entitles Taxpayer and members of Taxpayer's family to certain
benefits. These benefits include free admission to weekly poetry
readings, discounts on merchandise sold by B in its gift shop or by
mail order, and invitations to special events for members only, such
as lectures or informal receptions. When B first offers its
membership package for the year, B reasonably projects that each
special event for members will have a cost to B, excluding any
allocable overhead, of $5 or less per person. Because the family
membership benefits are disregarded pursuant to Sec. 1.170A-
13(f)(8)(i), Taxpayer may treat the $50 payment as a contribution or
gift within the meaning of section 170(c), regardless of Taxpayer's
intent and whether or not the payment exceeds the fair market value
of the goods or services. Furthermore, any charitable contribution
deduction available to Taxpayer may be calculated without regard to
the membership benefits.
Example 2. Treatment of good faith estimate at auction as the
fair market value. Taxpayer attends an auction held by Charity C, an
organization described in section 170(c). Prior to the auction, C
publishes a catalog that meets the requirements for a written
disclosure statement under section 6115(a) (including C's good faith
estimate of the value of items that will be available for bidding).
A representative of C gives a copy of the catalog to each individual
(including Taxpayer) who attends the auction. Taxpayer notes that in
the catalog C's estimate of the value of a vase is $100. Taxpayer
has no reason to doubt the accuracy of this estimate. Taxpayer
successfully bids and pays $500 for the vase. Because Taxpayer knew,
prior to making her payment, that the estimate in the catalog was
less than the amount of her payment, Taxpayer satisfies the
requirement of paragraph (h)(1)(i) of this section. Because Taxpayer
makes a payment in an amount that exceeds that estimate, Taxpayer
satisfies the requirements of paragraph (h)(1)(ii) of this section.
Taxpayer may treat C's estimate of the value of the vase as its fair
market value in determining the amount of her charitable
contribution deduction.
Example 3. Good faith estimate not in error. Taxpayer makes a
$200 payment to Charity D, an organization described in section
170(c). In return for Taxpayer's payment, D gives Taxpayer a book
that Taxpayer could buy at retail prices typically ranging from $18
to $25. D provides Taxpayer with a good faith estimate, in a written
disclosure statement under section 6115(a), of $20 for the value of
the book. Because the estimate is within the range of typical retail
prices for the book, the estimate contained in the written
disclosure statement is not in error. Although Taxpayer knows that
the book is sold for as much as $25, Taxpayer may treat the estimate
of $20 as the fair market value of the book in determining the
amount of his charitable contribution deduction.
(i) [Reserved]
* * * * *
(k) Effective date. In general this section applies to
contributions made in taxable years beginning after December 31, 1969.
Paragraph (j)(11) of this section, however, applies only to out-of-
pocket expenditures made in taxable years beginning after December 31,
1976. In addition, paragraph (h) of this section applies only to
payments made on or after the date these regulations are published in
the Federal Register as final regulations. However, taxpayers may rely
on the rules of paragraph (h) of this section for payments made on or
after January 1, 1994.
Par. 3. Section 1.170A-13 is amended as follows:
1. Paragraph (e) is added and reserved.
2. Paragraph (f) is added.
The additions read as follows:
Sec. 1.170A-13 Recordkeeping and return requirements for deductions
for charitable contributions.
* * * * *
(e) [Reserved]
(f) Substantiation of charitable contributions of $250 or more--(1)
In general. No deduction is allowed under section 170(a) for all or
part of any contribution of $250 or more unless the taxpayer
substantiates the contribution with a contemporaneous written
acknowledgment from a donee organization. Section 170(f)(8) does not
apply to a payment of $250 or more if the amount contributed (as
determined under Sec. 1.170A-1(h)) is less than $250.
(2) Written acknowledgment. Except as otherwise provided in
paragraphs (f)(8) and (f)(9) of this section, a written acknowledgment
from a donee organization must provide the following information--
(i) The amount of any cash the taxpayer paid and a description (but
not necessarily the value) of any property other than cash the taxpayer
transferred to the donee organization;
(ii) A statement of whether or not the donee organization provides
any goods or services in consideration, in whole or in part, for any of
the cash or other property transferred to the donee organization;
(iii) If the donee organization provides any goods or services
other than intangible religious benefits (as described in section
170(f)(8)), a description and good faith estimate of the value of those
goods or services; and
(iv) If the donee organization provides any intangible religious
benefits, a statement to that effect.
(3) Contemporaneous. A written acknowledgment is contemporaneous if
it is obtained by the taxpayer on or before the earlier of--
(i) The date the taxpayer files its original return for the taxable
year in which the contribution was made; or
(ii) The due date (including extensions) for filing the taxpayer's
original return for that year.
(4) Donee organization. For purposes of this paragraph (f), a donee
organization is an organization described in section 170(c).
(5) Goods or services. Goods or services means cash, property,
services, benefits, and privileges.
(6) In consideration for. A donee organization provides goods or
services in consideration for a taxpayer's payment if, at the time the
taxpayer makes the payment to the donee organization, the taxpayer
receives or expects to receive goods or services in exchange for that
payment. Goods or services a donee organization provides in
consideration for a payment by a taxpayer include goods or services
provided in a year other than the year in which the taxpayer makes the
payment to the donee organization.
(7) Good faith estimate. For purposes of this section, good faith
estimate means the donee organization's estimate of the fair market
value of any goods or services, without regard to the manner in which
the organization in fact made that estimate. See Sec. 1.170A-1(h)(4)
for rules regarding when a taxpayer may treat a donee organization's
estimate of the value of goods or services as the fair market value.
(8) Certain goods or services disregarded--(i) In general. For
purposes of section 170(f)(8), the following goods or services are
disregarded--
(A) Goods or services that have insubstantial value under the
guidelines provided in Revenue Procedures 90-12, 1990-1 C.B. 471, 92-
49, 1992-1 C.B. 987, and any successor documents. (See
Sec. 601.601(d)(2)(ii) of the Statement of Procedural Rules, 26 CFR
part 601.); and
(B) Annual membership benefits offered to a taxpayer for a payment
of $75 or less per year that consist of--
(1) Any rights or privileges, other than those described in section
170(l), that the taxpayer can exercise frequently during the membership
period. Examples of such rights and privileges include, but are not
limited to, free or
[[Page 39901]]
discounted admission to the organization's facilities or events, free
or discounted parking, preferred access to goods or services, and
discounts on the purchase of goods or services; and
(2) Admission to events during the membership period that are open
only to members of the donee organization and for which the donee
organization reasonably projects that the cost per person (excluding
any allocable overhead) for each such event is within the limits
established for ``low cost articles'' under section 513(h)(2). The
projected cost to the donee organization is determined at the time the
organization first offers its membership package for the year (using
section 3.07 of Revenue Procedure 90-12, or any successor documents, to
determine the cost if items or services are donated).
(ii) Examples. The following examples illustrate the rules of this
paragraph (f)(8).
Example 1. Membership benefits disregarded. Performing Arts
Center E is an organization described in section 170(c). In return
for a payment of $75, E offers a package of basic membership
benefits that includes the right to purchase tickets to performances
one week before they go on sale to the general public, free parking
in E's garage during evening and weekend performances, and a 10%
discount on merchandise sold in E's gift shop. In return for a
payment of $150, E offers a package of preferred membership benefits
that includes all of the benefits in the $75 package as well as a
poster that is sold in E's gift shop for $20. The basic membership
and the preferred membership are each valid for twelve months, and
there are approximately 50 performances of various productions at E
during a twelve month period. E's gift shop is open for several
hours each week and at performance times. F, a patron of the arts,
is solicited by E to make a contribution. E offers F the preferred
membership benefits in return for a payment of $150 or more. F makes
a payment of $300 to E. F can satisfy the substantiation requirement
of section 170(f)(8) by obtaining a contemporaneous written
acknowledgment from E that includes a description of the poster and
a good faith estimate of its fair market value ($20) and disregards
the remaining membership benefits.
Example 2. Rights or privileges that cannot be exercised
frequently. Community Theater Group G is an organization described
in section 170(c). Every summer, G performs four different plays.
Each play is performed two times. In return for a membership fee of
$60, G offers its members free admission to any of its performances.
Non-members may purchase tickets on a performance by performance
basis for $15 a ticket. H, an individual who is a sponsor of the
theater, is solicited by G to make a contribution. G tells H that
the membership benefit will be provided in return for any payment of
$60 or more. H chooses to make a payment of $350 to G and receives
in return the membership benefit. G's membership benefit of free
admission is not described in paragraph (f)(8)(i)(B) of this section
because it is not a privilege that can be exercised frequently (due
to the limited number of performances offered by G). Therefore, to
meet the requirements of section 170(f)(8), a contemporaneous
written acknowledgment of H's $350 payment must include a
description of the free admission benefit and a good faith estimate
of its value.
(9) Goods or services provided to employees of donors--(i) Certain
goods or services disregarded. For purposes of section 170(f)(8), goods
or services provided by a donee organization to a taxpayer's employees
in return for a payment to the organization may be disregarded to the
extent that the goods or services provided to each employee are the
same as those described in paragraph (f)(8)(i) of this section.
(ii) No good faith estimate required for other goods or services.
If a taxpayer makes a contribution of $250 or more to a donee
organization and, in return, the donee organization offers the
taxpayer's employees goods or services other than those described in
paragraph (f)(9)(i) of this section, the contemporaneous written
acknowledgment of the taxpayer's contribution is not required to
include a good faith estimate of the value of such goods or services
but must include a description of those goods or services.
(iii) Example. The following example illustrates the rules of this
paragraph (f)(9).
Example. Museum J is an organization described in section
170(c). For a payment of $40, J offers a package of basic membership
benefits that includes free admission and a 10% discount on
merchandise sold in J's gift shop. J's other membership categories
are for supporters who contribute $100 or more. Corporation K makes
a payment of $50,000 to J and in return, J offers K's employees free
admission, a tee-shirt with J's logo that costs J $4.50, and a gift
shop discount of 25%. The free admission for K's employees is the
same as the benefit made available to holders of the $40 membership
and is otherwise described in paragraph (f)(8)(i)(B) of this
section. The tee-shirt given to each of K's employees is described
in paragraph (f)(8)(i)(A) of this section. Therefore, a
contemporaneous written acknowledgment of K's payment is not
required to include a description or good faith estimate of the
value of the free admission or the tee-shirts. However, because the
gift shop discount offered to K's employees is different than that
offered to those who purchase the $40 membership, the discount is
not described in paragraph (f)(8)(i) of this section. Therefore, the
contemporaneous written acknowledgment of K's payment is required to
include a description of the 25% discount offered to K's employees.
(10) Substantiation of out-of-pocket expenses. A taxpayer that
incurs unreimbursed expenditures incident to the rendition of services,
within the meaning of Sec. 1.170A-1(g), is treated as having obtained a
contemporaneous written acknowledgment of those expenditures if the
taxpayer--
(i) Has adequate records under paragraph (a) of this section to
substantiate the amount of the expenditures; and
(ii) Obtains by the date prescribed in paragraph (f)(3) of this
section a statement prepared by the donee organization containing--
(A) A description of the services provided by the taxpayer;
(B) The date the services were provided;
(C) A statement of whether or not the donee organization provides
any goods or services in consideration, in whole or in part, for the
unreimbursed expenditures; and
(D) The information required by paragraphs (f)(2)(iii) and (iv) of
this section.
(11) Contributions made by payroll deduction. [Reserved]
(12) Distributing organizations as donees. [Reserved]
(13) Transfers to certain trusts. Section 170(f)(8) does not apply
to a transfer of property to a trust described in section 170(f)(2)(B),
a charitable remainder annuity trust (as defined in section 664(d)(1)),
or a charitable remainder unitrust (as defined in section 664(d)(2)).
Section 170(f)(8) does apply, however, to a transfer to a pooled income
fund (as defined in section 642(c)(5)).
(14) Substantiation of charitable contributions made by a
partnership or an S corporation. If a partnership or an S corporation
makes a charitable contribution of $250 or more, the partnership or S
corporation will be treated as the taxpayer for purposes of section
170(f)(8). Therefore, the partnership or S corporation must
substantiate the contribution with a contemporaneous written
acknowledgment from the donee organization before reporting the
contribution on its income tax return for the year in which the
contribution was made and must maintain the contemporaneous written
acknowledgment in its records. A partner of a partnership or a
shareholder of an S corporation is not required to obtain any
additional substantiation for his or her share of the partnership's or
S corporation's charitable contribution.
(15) Substantiation of matched payments--(i) In general. For
purposes of section 170, if a taxpayer's payment to a donee
organization is matched, in whole or in part, by another payor, and
[[Page 39902]]
the taxpayer receives goods or services in consideration for its
payment and some or all of the matching payment, those goods or
services will be treated as provided in consideration for the
taxpayer's payment and not in consideration for the matching payment.
(ii) Example. The following example illustrates the rules of this
paragraph (f)(15).
Example. Taxpayer makes a $400 payment to Charity L, a donee
organization. Pursuant to a matching payment plan, Taxpayer's
employer matches Taxpayer's $400 payment with an additional payment
of $400. In consideration for the combined payments of $800, L gives
Taxpayer an item that it estimates has a fair market value of $100.
L does not give the employer any goods or services in consideration
for its contribution. The contemporaneous written acknowledgment
provided to the employer must include a statement that no goods or
services were provided in consideration for the employer's $400
payment. The contemporaneous written acknowledgment provided to
Taxpayer must include the amount of Taxpayer's payment, a
description of the item received by Taxpayer, and a statement that
L's good faith estimate of the value of the item received by
Taxpayer is $100.
(16) Effective date. This paragraph (f) applies to contributions
made on or after the date that these regulations are published in the
Federal Register as final regulations. However, taxpayers may rely on
the rules of this paragraph (f) for contributions made on or after
January 1, 1994.
Par. 4. Section 1.6115-1 is added under the undesignated
centerheading ``Miscellaneous Provisions'' to read as follows:
Sec. 1.6115-1 Disclosure requirements for quid pro quo contributions.
(a) Good faith estimate defined--(1) In general. A good faith
estimate of the value of goods or services provided by an organization
described in section 170(c) in consideration for a taxpayer's payment
to that organization is an estimate of the fair market value, within
the meaning of Sec. 1.170A-1(c)(2), of the goods or services. The
organization may use any reasonable methodology in making a good faith
estimate, provided it applies the methodology in good faith. If the
organization fails to apply the methodology in good faith, the
organization will be treated as not having met the requirements of
section 6115. See section 6714 for the penalties that apply for failure
to meet the requirements of section 6115.
(2) Good faith estimate for goods or services that are not
commercially available. A good faith estimate of the value of goods or
services that are not generally available in a commercial transaction
may be determined by reference to the fair market value of similar or
comparable goods or services. Goods or services may be similar or
comparable even though they do not have the unique qualities of the
goods or services that are being valued.
(3) Examples. The following examples illustrate the rules of this
paragraph (a).
Example 1. Facility not available on a commercial basis. Museum
M, an organization described in section 170(c), is located in
Community N. In return for a payment of $50,000 or more, M allows a
donor to hold a private event in a room located in M. No other
private events are permitted to be held in M. In Community N, there
are four hotels, O, P, Q, and R, that have ballrooms with the same
capacity as the room in M. Of these hotels, only O and P have
ballrooms that offer amenities and atmosphere that are similar to
the amenities and atmosphere of the room in M (although O and P lack
the unique collection of art that is displayed in the room of M).
Because the capacity, amenities, and atmosphere of ballrooms in O
and P are comparable to the capacity, amenities, and atmosphere of
the room in M, a good faith estimate of the benefits received from M
may be determined by reference to the cost of renting either the
ballroom in O or the ballroom in P. The cost of renting the ballroom
in O is $2500 and, therefore, a good faith estimate of the fair
market value of the right to host a private event in the room at M
is $2500. In this example, the ballrooms in O and P are considered
similar and comparable facilities to the room in M for valuation
purposes, notwithstanding the fact that the room in M displays a
unique collection of art.
Example 2. Services available on a commercial basis. Charity S
is an organization described in section 170(c). S offers to provide
a one-hour tennis lesson with Tennis Professional T in return for
the first payment of $500 or more that it receives. T provides one-
hour tennis lessons on a commercial basis for $100. Taxpayer pays
$500 to S and in return receives the tennis lesson with T. A good
faith estimate of the fair market value of the lesson provided in
exchange for Taxpayer's payment is $100.
Example 3. Celebrity presence. Charity U is an organization
described in section 170(c). In return for the first payment of
$1000 or more that it receives, U will provide a dinner for two
followed by an evening tour of Museum V conducted by Artist W, whose
most recent works are on display at V. W does not provide tours of V
on a commercial basis. Typically, tours of V are free to the public.
Taxpayer pays $1000 to U and in return receives a dinner valued at
$100 and an evening tour of V conducted by W. Because tours of V are
typically free to the public, a good faith estimate of the value of
the evening tour conducted by W is $0. In this example, the fact
that Taxpayer's tour of V is conducted by W rather than V's regular
tour guides does not render the tours dissimilar or incomparable for
valuation purposes.
(b) Certain goods or services disregarded. For purposes of section
6115, an organization described in section 170(c) may disregard goods
or services described in Sec. 1.170A-13(f)(8)(i).
(c) Goods or services provided to employees of donors--
(1) Certain goods or services disregarded. For purposes of section
6115, goods or services provided by an organization described in
section 170(c) to a taxpayer's employees in return for a payment to the
organization may be disregarded to the extent that the goods or
services provided to each employee are the same as those described in
Sec. 1.170A-13(f)(8)(i).
(2) Description permitted in lieu of good faith estimate for other
goods or services. If a taxpayer makes a quid pro quo contribution in
excess of $75 to an organization described in section 170(c) and, in
return, the organization offers the taxpayer's employees goods or
services other than those described in paragraph (c)(1) of this
section, the organization's written disclosure statement required by
section 6115 may include a description of the goods or services in lieu
of a good faith estimate of the value of the goods or services,
provided that the statement otherwise satisfies the requirements of
section 6115.
(d) Effective date. This section applies to contributions made on
or after the date that these regulations are published in the Federal
Register as final regulations. However, taxpayers may rely on the rules
of this section for contributions made on or after January 1, 1994.
Margaret Milner Richardson,
Commissioner of Internal Revenue.
[FR Doc. 95-19063 Filed 8-3-95; 8:45 am]
BILLING CODE 4830-01-U
