"Token Benefit" Limitations for 2015 Charitable Contributions

"Token Benefit" Limitations for 2015 Charitable Contributions

Article posted in Regulations on 8 January 2015| comments
audience: National Publication, Richard L. Fox, Esq. | last updated: 14 January 2015
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Summary

Charity and Donor alert: author Richard Fox clarifies new interpretations of the "Token Benefit".

By Richard L. Fox, Esquire

When a donor receives goods or services in consideration for a contribution, only the excess of the amount of the contribution over the value of the goods and services received in return is deductible for income tax purposes.  In addition, where the amount of the contribution exceeds $75, the charity is required under the “quid pro quo” rules of IRC § 6115 to provide a written statement to the contributor providing a good faith estimate of the value of the goods and services provided.  In Rev. Proc. 90-12, 1990-1 COB. 471, the IRS provides specific “safe harbor” rules for situations where “token benefits” received by a donor in the context of a fund-raising campaign will be treated as having such insubstantial value that they will be disregarded for purposes of the foregoing rules under IRC § 6115. Where these safe harbor rules are met, the benefit received by the contributor is also disregarded for purposes of the “contemporaneous written acknowledgment” rules under IRC §170(f)(8) applicable to contributions of $250 or more. 

            In determining whether benefits are considered to have an insubstantial value so as to be disregarded for tax purposes, Rev. Proc. 90-12 sets forth applicable dollar limitations, which are adjusted annually for inflation. For 2014, Rev. Proc.  2007-66, 2007-45 IRB 970, increases these limitations from 2014, such that token benefits associated with a fund-raising campaign in 2015 will be disregarded if:

  • The contribution is in the amount of at least $52 (increased from $51 in 2013), the only benefits received in connection with the contribution are token items (bookmarks, key chains, mugs, posters, etc.) bearing the organization's name or logo, and the cost of these token items to the charity does not exceed $10.50 (increased from $10.40 in 2014);
     
  • The fair market value of all of the benefits received in connection with the contribution does not exceed 2% of the amount of the contribution or $105 (up from $104 in 2014), whichever is less; or
  • The charity distributes free, unordered items to contributors where the cost of these items to the charity does not exceed $10.50 (increased from $10.40 in 2014).

Note on Application of Token Benefits to Donor-Advised Funds: The rules regarding token benefits that are disregarded in determining the amount of the available charitable income tax deduction take on new meaning in light of the Pension Protection Act of 2006 (PPA).  Section 1231 of the Act added new IRC § 4967 (“Taxes on Prohibited Benefits”) under which, effective for taxable years beginning after August 17, 2006, an excise tax is imposed where an advisor to a donor-advised fund recommends a distribution that results in “a more than incidental benefit,” whether directly or indirectly, to a (1) donor to the fund, (2) advisor to the fund, (3) member of the family of the donor or advisor to the fund or (4) 35% controlled entity of such donor, advisor or family member.  The excise tax equals 125% of the amount of the benefit and is imposed against the advisor who recommended the distribution and the recipient of the benefit, who are jointly and severally liable for the tax.  In addition, a 10% excise tax is imposed on such distribution on a “fund manager” of the sponsoring organization that approves the distribution knowing that it would confer a more than incidental benefit on the recipient, subject to a maximum tax of $10,000 for each such distribution.  While not defined under the PPA, the Joint Committee on Taxation Technical Explanation provides that there is “a more than incidental benefit” if the benefit, under the rules governing charitable contribution deductions under IRC § 170, would otherwise cause the reduction or elimination of a charitable contribution deduction.  Thus, a benefit that is not disregarded under the token benefit rules under IRC § 170, such as tickets to a fund-raising event, is subject to the new excise tax regime under IRC § 4967 for prohibited benefits received as a result of a distribution from a donor-advised fund.    

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