With the New York fall benefit season right around the corner, before you donate to the latest cause celebre, you should be mindful of the following:
First, in order for your contribution to be deductible, it must be made to a qualified organization and not to an individual. Direct contributions to individuals, while very noble, are not deductible.
Second, you should treat your contribution just as you would one of your investments: Conduct proper due diligence. When making a donation, I always go through the following steps:
Step 1: Is the organization tax-exempt?
The best way to check an organization’s tax-exempt status is by verifying whether it is listed on IRS Publication 78, Cumulative List of Organizations described in Section 170(c) of the Internal Revenue Code of 1986. This publication, available on the IRS website (www.irs.gov), contains an up-to-date list of organizations eligible to receive tax-deductible contributions. If you are not Internet savvy, check the organization’s tax-exempt status by calling the IRS at 877-829-5500.
Step 2: Is the organization registered to solicit contributions in your state?
About 40 states have enacted charitable solicitation laws that require organizations to register with a state agency before soliciting funds from residents of that state. Each of those states usually has a website where you can research whether a particular charity is registered to solicit in that state. For example, on the New York State Attorney General’s website, www.charitiesnys.com, you can look up which charities are registered to solicit and verify whether or not a particular charity is in good standing with the Attorney General.
"If a charitable contribution entitles you to any goods
or services, you can deduct only the amount that
exceeds the fair market value of the benefit received."
Step 3: Did you perform an online search on the organization?
There is no excuse these days for not having enough information, especially when it comes to charities. One free site, GuideStar (
www.guidestar.org), gathers and publicizes information about nonprofit organizations. From here, you can also access the IRS Form 990 (the annual tax return) for each organization. The Form 990 can be a useful tool
in determining whether your dollars will be put to a good use. There are also several “charity watchdog” websites (e.g.,
www.charitynavigator.org,
www.charitywatch.org,
www.bbb.org) that evaluate and rate charities according to various criteria.
Third, if you were to make a significant investment in a company, wouldn’t you want an agreement to memorialize the terms and conditions of your investment? Well, why don’t you do the same thing when you make a significant gift to a charity? Although many charities offer you their own form of gift agreement, don’t be afraid to use your own agreement that sets forth terms such as payment schedule, purposes of the gift, reporting requirements, and the like. After all, you are the one making the gift.
Fourth, it is prudent to consult with your advisors before claiming a deduction for your contributions. Some people I know elect to do all of their charitable giving simply by attending charity galas and other fundraisers, or simply by making the majority of their purchases at silent auctions. Before you go and spend $5,000 at a silent auction for an all-expenses-paid trip for four on a private yacht with your favorite celebrity, remember that if a charitable contribution entitles you to any goods or services (including admission to a charity gala, theatrical performance or sporting event), you can deduct only the amount that exceeds the fair market value of the benefit received. So if the fair market value of your silent auction item is $6,000 and you paid $5,000, you are probably out of luck if you thought you were going to get a nice deduction. Similarly, if your gala benefit ticket costs $250 and the fair market value of the event totals $175, the most you can claim as a deduction is $75.
Fifth and finally, once you make your contribution, keep proper records! Make sure the organization gives you a bank record or receipt, letter or other written communication stating the name of the organization, the date you made the contribution, and the amount of your contribution.
Now, as for what you should wear to your favorite gala, I will leave that up to you...
©2011 Karen Alinauskas, Esq. All rights reserved.
After 10 years at Simpson Thacher & Bartlett LLP, Karen Alinauskas recently launched her solo practice focusing on entertainment/media, general corporate, and non-profit law. She is also a proud mom to her beautiful five-month-old son. Please note that this article is for informational purposes only and is not legal advice; consult with your own legal and tax advisors.
