Q: You wrote an excellent article a few years ago in regards to determining the fair market value of events. Occasionally third parties will hold fundraising events to benefit our organization. Sometimes in those situations the attendees will make their checks out to our organization to cover the cost of the ticket. When sending an acknowledgement for these participant/donor gifts, how does or should our organization take into account the fair market value of the event, when our organization is not organizing or sponsoring it?
A: Questions about fair market value are always challenging and this one is no exception.
I think we all understand why people would want to make out the check directly to your organization. Deductibility is based on donating to a qualified charity. There is no deductibility if someone makes a check out to the event organizer and that event organizer lacks a determination letter from the IRS designating it as a qualified organization.
Your willingness to have checks made out to your organization speaks, I’m sure, to your desire to both ensure that any monies raised in the name of your organization actually come to your organization and to have a means by which you can identify new people to bring into your organizational “family.” Certainly you, and other organizations lucky enough to have people from the community sponsoring events to support their mission, also want to thank the people who respond generously to their friends’ and neighbors’ efforts to benefit your organization. Responding quickly, warmly and appropriately is important. So, what is appropriately?
The IRS states that organizations are required to provide a written disclosure to anyone who receives goods or services in exchange for a single payment in excess of $75. Common sense and convention dictate that such disclosure is sent to all donors. Once you allow checks to be made out to your organization, you are accepting this responsibility. This means that you should be meeting with the third party and educating the party about fair market value and how to both calculate and promote it. (You might share with the third party the original On Nonprofits article you reference in your question.) Such a discussion will clarify for you what you can write in your letter to the participant/donors.
In my discussion with a representative from the IRS’ Exempt Organization’s Department the agent stressed that regardless of who puts on the event, it falls to your organization to maintain excellent records. You must be able to report how much money was taken in, how much went to pay for expenses and what you were able to keep as a contribution. He recommended you take the added step of writing on the front of each check the portion of the check that went to pay for the fair market value of the event and how much is allowable as a donation.
Because of the added burden, a number of organizations do not permit participant/donors to make their checks out to the organization in the case of a third party sponsorship. If your organization does not currently have policies dictating how to respond to offers of fund raising events sponsored by a third party, you should draft them immediately. In addition, you should create a contract to be signed by such parties that details what they can and cannot do in your organization’s name, what kind of records they must keep and how much or how little support you will give them in the process. For instance, will you provide any staff supervision or volunteer support? May your logo be used? If so, is there a standard that must be followed when using the logo? You may also want to put this into a manual and/or list the information on your website.
Check out the IRS publication 1771, Charitable Contributions: Substantiation and Disclosure Requirements for further information.