Q&A #66 – Must a charity’s donation acknowledgement letter reflect the value of a celebrity’s presence?
Question: I am helping to organize a fundraising event for a 501(c)(3) organization, and one of our auction items will be a round of golf with a famous professional golfer. I am aware that the acknowledgment letter provided to the donor who wins this auction must include a statement of the fair market value of the prize. How should we reflect the fact that this celebrity’s presence makes this a very high value prize?
Answer: The Treasury Regulations related to “quid pro quo” contributions (summarized in IRS Publication 1771) generally require that charities include in the acknowledgment letter a good faith estimate of the fair market value of goods or services provided to a donor in exchange for the donation, and only the portion of the donation that exceeds this fair market value is eligible for the charitable deduction. However, these regulations provide that a celebrity’s presence generally does not need to be taken into account when determining fair market value.
Treas. Reg. § 1.6115-1 includes an example that specifically addresses this situation:
“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.”
In your case, you probably have a strong argument that a round of golf with a famous professional golfer is analogous to the tour of the museum conducted by a well-known artist. This means that the acknowledgment letter should state the value of playing a round of golf at the particular club, but arguably would not have to include the higher perceived value of playing with the celebrity.
However, be aware that not all situations are eligible for this treatment. If the golfer regularly provides this experience as a service on a commercial basis (appearance fees, golf lessons, etc.), then you would typically be required to refer to the price of the service when determining fair market value. This is illustrated by another example in Treas. Reg. § 1.6115-1:
“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.”
Planning Tip – When it comes to unusual charity auction items, remember that the main goal is to obtain the largest possible bid from donors. To this end, do the research to get a sense of the actual value of the item based on results from similar auctions and other sources, and factor this into the price your set for your minimum starting bid. However, you should clearly state in the auction listing the fair market value for charitable deduction purposes so donors can assess how much they will be able to deduct.
While donors almost certainly place a high value on the opportunity to have this type of intimate interaction with a celebrity, the rules are quite favorable in generally allowing organizations to disregard this aspect of the transaction for purposes of determining the fair market value stated in the acknowledgment letter.
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