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Question about insubstantial benefits

  • 1.  Question about insubstantial benefits

    Posted 01-13-2021 09:20 AM

    Good morning, all –

     

    If we give away low-cost items (e.g. facemasks with our school's logo) in response to gifts, and the gift is LESS THAN $56.50, what is the maximum value the goods can be before we need to disclose their fair market value on the receipts? 

     

    I believe it's 2% of the value of the gift, but I just wanted to check to see if there are any other exceptions to this rule. 

     

    Thanks,

     

    Michael Halverson, Ed.D.
    Senior Director of Advancement Services
    Loyola University Chicago
    T.
    312-915-7283 | C. 320-363-4987
    mhalverson@luc.edu | www.luc.edu/advancement

     

    150_email_150_31

     



  • 2.  RE: Question about insubstantial benefits

    Posted 01-13-2021 09:31 AM
    If you give things away below the minimum gift requirement, you are subject to the 2% rule.  So all these lovely items must be disclosed unless their value is under $1.12 or so.

    John

    John H. Taylor
    Principal
    John H. Taylor Consulting, LLC
    2604 Sevier St.
    Durham, NC   27705
    919.816.5903 (cell/text)

    Serving the Advancement Community Since 1987






  • 3.  RE: Question about insubstantial benefits

    Posted 01-13-2021 09:33 AM

    That's what I thought; thanks so much!

     

    Michael Halverson, Ed.D.
    Senior Director of Advancement Services
    Loyola University Chicago
    T. 312-915-7283 | C.
    320-363-4987
    mhalverson@luc.edu | www.luc.edu/advancement

     

     






  • 4.  RE: Question about insubstantial benefits

    Posted 01-14-2021 07:25 AM
    If the gift was over $56.50 would it still need to be disclosed?  If the situation would be a gift more than $56.50 and they gave away the low cost item would it then be considered a "token item" because it is so minimal?   

    While we are on the subject, can you tell me again how do I know which option to use when we give away low cost items.    IRS gives us an option of 1) low cost articles whose FMV is not more than 2% of the donor's payment or $113.00 whichever is less OR 2) When the payment is $56.50 and the only benefit received is a token item such as a mug, calendar, etc. bearing the organization's name or log.  These token items are deemed to be low cost articles if their cost not FMV does not exceed $11.30, in all aggregate, for all items received by the donor during that year.  

    I am sure you have answered this many times, but since we are on the topic a quick refresher of when I would use each one of these situations would be helpful.

    Thank you.

    ------------------------------
    Corie Pryor
    Coordinator of Advancement Services
    Truman State University
    cpryor@truman.edu
    ------------------------------



  • 5.  RE: Question about insubstantial benefits

    Posted 01-14-2021 07:39 AM
    Corie, as long as the benefit meets the criteria you reference as a token item (option 2), then that is the rule you follow.

    If the token items value (cumulative value) exceed the annual maximum limit ($11.30 in 2021) - or the donation amount falls below the annual minimum gift ($56.50 in 2021) - then the 2% or $113 (whichever is less) rule applies.

    John

    John H. Taylor 
    919.816.5903 (Cell/Text)

    Big Ideas; Small Keyboard





  • 6.  RE: Question about insubstantial benefits

    Posted 01-14-2021 07:40 AM
    Hi All,

    Do you know of any private schools that have a separate foundation? What are the advantages and disadvantages? 

    Thank you,

    Olga






  • 7.  RE: Question about insubstantial benefits

    Posted 01-14-2021 10:26 AM
    Corie, I realize my reply dealt with your second question only.

    Regarding the disclosure if the gift is $56.50+:  Maybe yes, maybe no!  Again, the token benefits must fall within the parameters established by the IRS.  Provided the combined value of all low-cost articles falls under $11.30, and each item reflects the organization name or logo, you do not need to disclose anything.  In such cases I like using the following language on the gift receipt:  No substantial donor benefits or services were provided in exchange for this contribution.

    The italics are for emphasis and do not need to be on the receipt.

    John


    John H. Taylor
    Principal
    John H. Taylor Consulting, LLC
    2604 Sevier St.
    Durham, NC   27705
    919.816.5903 (cell/text)

    Serving the Advancement Community Since 1987


    On Thu, Jan 14, 2021 at 8:38 AM John Taylor <johntaylorconsulting@gmail.com> wrote:
    Corie, as long as the benefit meets the criteria you reference as a token item (option 2), then that is the rule you follow.

    If the token items value (cumulative value) exceed the annual maximum limit ($11.30 in 2021) - or the donation amount falls below the annual minimum gift ($56.50 in 2021) - then the 2% or $113 (whichever is less) rule applies.

    John

    John H. Taylor 
    919.816.5903 (Cell/Text)

    Big Ideas; Small Keyboard





  • 8.  RE: Question about insubstantial benefits

    Posted 19 days ago
    I am revisiting this subject.  We are giving away a low cost article for anyone who is making a gift of over $56.50 today.  We have a donor that has spit his giving between several designations.  However, he did it on-line and did not know how to assign several designations so he made several gifts that have a cumulative amount over the $56.50.  None of the individual gifts were over the $56.50 amount. I'm trying to figure out if he will be eligible to receive the low cost article   He did it this way because he did not see a way to enter his gift amount and split the gift into several designations.

    Please advise. If he is ineligible because of making several different donations instead of one donation with split designations, I will need to explain why he will not get the low cost article.  I am sure I will get some push back because he will say it was our process that did not allow him to make one gift and split it.

    Thank you.

    ------------------------------
    Corie Pryor
    Coordinator of Advancement Services
    Truman State University
    cpryor@truman.edu
    ------------------------------



  • 9.  RE: Question about insubstantial benefits

    Posted 19 days ago
    It is up to you to determine eligibility, really.  The IRS looks at what qualifies a donor for a benefit.  They say it's a gift of $56.50.  They don't get into how many pieces you break that into.

    So, given your story, if you feel that the donors' intent was to make one gift and then split it up, then I would treat it that way.  I would issue a single receipt thanking them for their single gift, and then mention how the gift was distributed.

    John

    John H. Taylor
    Principal
    John H. Taylor Consulting, LLC
    2604 Sevier St.
    Durham, NC   27705
    919.816.5903 (cell/text)

    Serving the Advancement Community Since 1987







  • 10.  RE: Question about insubstantial benefits

    Posted 19 days ago

    I think that you're fine to send the item.  The donor is being given the item in consideration of giving that totals $56.50. 

     

    This really isn't any different from a donor who makes recurring gifts and qualifies for a benefit when their giving total hits a specified threshold.

     

    What the tax code (and therefore the IRS) has in view is that, in order to consider a benefit to be token or insubstantial, the value of the benefit can't too large compared to the contribution.  It doesn't really matter whether the associated giving was made in one fell swoop by the donor (or, for that matter, whether the donor gave in one transaction but we split it among various designations, at the donor's direction or because of our internal issues).

     

    The substance is just "the donor gave us <this> and in return we gave the donor <that>."  In this case, the donor gave you $56.50, and, in response, you sent the donor the token benefit. The rest is just details.

     

    My US$0.02 worth; the usual disclaimers apply.

     

    Good luck!

     

    Alan

     

    Alan S. Hejnal   

    Data Quality Manager

     

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    Smithsonian Institution - Office of Advancement

    600 Maryland Ave SW Ste 600E

    PO Box 37012, MRC 527

    Washington, DC 20013-7012

    Voice: 202-633-8754 | Email: HejnalA@si.edu