NONPROFIT FUNDRAISING IN TEXOMA: TAX AND OTHER LEGAL ISSUES

• Dana Taylor, CPA

Chapter 47 of the Texas Penal Code provides that a person commits a criminal offense by engaging in gambling or operates or participates in the earning of a place that is used for gambling.

The offense of gambling involves three basic elements: 1) consideration; 2) chance; and 3) a prize.

In 1990, the Texas Charitable Raffle Enabling Act legalized charitable raffles that satisfy its detailed requirements.

The Oklahoma Educational Lottery Act legalized charitable raffles effective November 9, 2004.

GAMBLING LAWS

TEXAS GAMBLING LAWS

Rules for Raffles in Texas1. Qualified 501(c)(3) tax-exempt nonprofit organizations

in existence for at least three years2. No permit required3. Two raffles per calendar year allowed4. Only donated advertising allowed5. Tickets may only be promoted and sold locally, internet

promotion does not qualify as local6. Specific requirements for printed tickets7. Cash prizes are strictly prohibited8. Value limits on purchased prizes

RAFFLES

Rules for Raffles in Oklahoma1. Qualified 501(c) tax-exempt nonprofit organizations, as

well as certain other nonprofit organizations2. No permit required3. Tickets must be numbered4. Tickets must be issued in conjunction with voluntary

contributions5. Must be conducted by the members of the qualified

organization without any compensation to any member

RAFFLES

Poker/Casino Nights• Prohibited by the gambling laws of Texas & Oklahoma• The three parts required to constitute gambling• Other fundraising options

WHAT NOT TO DO!

• Three year rule• Only specific nonprofits allowed:

• Religious Society• Nonprofit Medical Organization• Volunteer Fire Department• Veteran Organizations• Fraternal Organizations

• Strict enforcement by the Texas Lottery Commission

LIMITED FUNDRAISING OPPORTUNITY

Bingo in Texas

GOOD ADVICE:

• Oklahoma Charity Games Act• Two year rule• Nonprofit organizations exempt under 501(c) (3), (4), (5),

(6), (7), (8), (9), (10), and (19)• Regulated by the Alcoholic Beverage Laws Enforcement

(ABLE) Commission:• Various license and fee requirements• Exemption from some provisions for four or fewer

sessions per year• Refer to the Oklahoma Charitable Gaming Act for

additional rules.

IT’S OK IN OKLAHOMA

Bingo in Oklahoma

One-Day Fundraising Events• One day means 24 consecutive hours• 501(c)(3) organizations allowed two one-day, tax-free

sales or auctions each calendar year• Entrance fees allowed• Permits required for food prepared onsite and for alcohol

sales

OTHER FUN TEXAS FUNDRAISING FACTS

Sponsorships vs Advertising• Qualified sponsorship acknowledgements may include the

sponsors name, logo, and general contact information• Sponsor perks are quid pro quo transactions• Advertising includes messages containing qualitative or

comparative language, price information, or other indications of savings

MORE RULES!

COMPLIANCE ISSUES

IRS Reporting & Withholding Requirements for Raffle Prizes• W-2G reporting for prizes of $600 or more• Form W-9 and Form 5754, Statement of Person(s)

Receiving Gambling Winnings• Federal income tax withholding requirements for prizes of

more than $5,000• Form 945, Annual Return of Withhold Federal Income

Tax

COMPLIANCE ISSUES

Quid Pro Quo Contributions• Contributions in exchange for goods and services• Donor acknowledgement letter required for payments of

more than $75, including a disclosure statement that provides a good faith estimate of the fair market value of the goods and/or services they received

Donor acknowledgement required for cash and non-cash gifts valued at $250 or more

COMPLIANCE ISSUES

Raffles and Casino/Poker Nights in TexasFrequently Asked QuestionsThe Charitable Raffle Enabling Act, Chapter 2002 of the Occupations Code (CREA) establishes the guidelines

for raffles in Texas. See Tex. Occ. Code Ann. Ch. 2002 (Vernon 2004). The statute is very technical and should

be consulted before advising an organization regarding the legality of a proposed raffle. There are numerous

Attorney General Opinions regarding both raffles and casino/poker nights. The Attorney General is not permitted

to give specific legal advice to members of the general public, and the following represents only guidelines for

suggested responses to frequently asked questions.

Raffles

1) What is a raffle?

CREA defines a raffle as "the award of one or more prizes by chance at a single occasion among a single pool or

group of persons who have paid or promised a thing of value for a ticket that represents a chance to win a prize."

2) Who may conduct raffles?

Only a qualified religious society that has been in existence in Texas for at least 10 years; a qualified volunteer

fire department that operates fire fighting equipment, provides fire-fighting services and that does not pay its

members other than nominal compensation; a qualified volunteer emergency medical service that does not pay

its members other than nominal compensation; or a qualified 501(c) tax-exempt, nonprofit organization that has

been in existence for at least three years may hold raffles in Texas. Individuals and for profit businesses may not

hold raffles.

3) Do I have to register or obtain a permit to conduct a raffle?

No. You just have to qualify under the law.

4) How many raffles may be held?

Each qualified organization is allowed two raffles per calendar year.

5) What if a raffle cannot be held on the date scheduled?

The organization may set another date not later than 30 days from the original date. If the prizes are not awarded

within 30 days of the original date, the organization must refund the ticket money to the purchasers.

6) For what may the money raised be used?

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Who may conduct raffles?

a qualified 501(c) tax-exempt, nonprofit organization that has

been in existence for at least three years may hold raffles in Texas.

All proceeds from raffles must be used for the charitable purposes of the organization as defined by CREA

2002.002(1).

7) How may a raffle be promoted?

Paid advertising through a medium of mass communication is prohibited. Donated advertising is permissible.

8) Can I advertise and sell tickets on the Internet?

CREA states that the organization may not promote or advertise a raffle statewide or sell or offer to sell tickets

statewide. The term statewide has not been defined or interpreted in any known court proceeding or Attorney

General Opinion, but it is generally thought that statewide would include Internet promotion.

9) Who can sell tickets?

The organization's members or anyone who is authorized by the organization may sell tickets.

10) Can I hire people to sell tickets? Can I give a prize to the person who sells the most tickets?

No. The organization may not compensate a person directly or indirectly for selling tickets.

11) May I hire someone to organize and conduct the raffle?

No. The organization may not compensate a person directly or indirectly for organizing or conducting a raffle.

12) What must be printed on the tickets?

Five items must be on each ticket: 1) the name of the organization conducting the raffle; 2) the address of the

organization or of a named officer of the organization; 3) the ticket price; 4) a general description of each prize

having a value of more than $10 to be awarded in the raffle and 5) the date on which the raffle prize or prizes will

be awarded.

13) Can I give cash prizes?

No. Cash prizes are strictly prohibited. "Money" is defined by CREA as "coins, paper currency, or a negotiable

instrument that represents and is readily convertible to coins or paper currency." See 2002.002(1-a). A certificate

of deposit is a prohibited prize. See Tex. Att'y Gen. Op. No. JC-0111 (1999). A U.S. savings bond and a prepaid,

or "stored-value," credit card is not prohibited. See Tex. Att'y Gen. Op. No. GA-0341 (2005). The question of the

prohibition of a gift certificate has not been addressed in an AG Opinion, but it has been suggested that as long

as it is not readily convertible to cash, it would likely not be prohibited.

14) Is there a limit on the value of prizes?

Yes. For purchased prizes, the value of each prize may not exceed $50,000. For a purchased residential

dwelling, the value may not exceed $250,000. There is no limit on the value of donated prizes.

15) Do I need to have the prize on hand at the time of the drawing?

CREA states that the organization must have the prize in its possession or ownership or it must post a bond with

the county clerk of the county in which the raffle is to be held for the full amount of the money value of the prize.

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12) What must be printed on the tickets?

Can I advertise and sell tickets on the Internet?

Cash prizes are strictly prohibited.

16) How do I post a bond with the county clerk?

The statute is very vague on this, but it is assumed that it must be some sort of surety bond. Many county clerks

are unaware of the required procedure, so it is suggested that a surety bond be obtained from a bond company

and the county clerk's office then asked to keep it on file until the prize is awarded. Refer the clerk's office to

CREA 2002.056(d)(2).

Poker/Casino Nights

1) Can my nonprofit hold a poker tournament or casino night fundraiser?

Unlike raffles and bingo, there is NO exception to the gambling law in Texas for nonprofits to hold poker or

casino night fundraising events. The gambling law, Chapter 47 of the Penal Code, applies to nonprofits and to for

profits equally. See Tex. Pen. Code Ann. §47 (Vernon 2003). Basically, there are three parts to an activity that

could make it illegal gambling: 1) money or anything of value is paid to enter the game; 2) the winners are

decided by a game of chance and 3) prizes of value are awarded. If all three of those conditions are met, then it's

probably gambling and illegal. If the game is free to enter, then prizes of value may be awarded. If an entry fee is

charged, then prizes of value may not be awarded. There are some exceptions to this rule, including certain

carnival contests in which prizes with a value of less than $25 are awarded and mechanical devices for

amusement purposes in which prizes with a value of less than $5 are awarded. If your organization is

considering conducting an event involving a game of chance, you should consult Chapter 47 of the Penal Code

to determine its legality.

2) What if the poker tournament or casino night is held in a private place?

It is legal for individuals to play poker or other casino activities in a private place, defined as "a place to which the

public does not have access." They can bet money and win money. However, all money must be redistributed to

the participants. The "house" cannot keep a cut, thus it would obviously be difficult for a nonprofit to raise funds

in this way.

For More Information:

Online Charitable Raffles brochure. Online Attorney General Opinions. Charitable Raffle Enabling Act: Texas Legislature Online: www.capitol.state.tx.us (Statutes/Occupations Code/Chapter 2002). Charitable bingo is authorized by the Bingo Enabling Act, Chapter 2001 of the Occupations Code. [See Tex. Occ. Code Ann. ch. 2001 (Vernon 2004)] and is administered by the Texas Lottery Commission. For information on charitable bingo, contact the Charitable Bingo Operations Division of the Texas Lottery Commission at www.txbingo.org.

Revised: May 28 2010

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District Attorneys are required to be licensed in the State of Oklahoma and complaints are investigated by the Oklahoma Bar Association.

Duties of Attorney General

What are the duties of the Attorney General?

The Attorney General and assistant attorneys general have many duties and responsibilities representing state boards and agencies.

The Attorney Generals' Office is comprised of the following specialized sections: Solicitor General, Public Protection, Criminal Appeals, General Counsel, Litigation, Medicaid Fraud Control Unit, Multicounty Grand Jury, Workers Compensation and Insurance Fraud Unit, Public Utility Regulation, and Victim Services.

You can visit our website and click on our "Sections & Units" section to learn more about the functions of the attorney general's specialized divisions. Also, you may visit our website and submit this query in our legal research section for O.S. Title 74 section 18 et seq. to learn more about the duties of the Attorney General.

Jail Inspections

Who should I contact regarding State and County jail conditions in Oklahoma?

You may contact Oklahoma State Jail Inspector, Don Garrison at the following address:

1000 N.E. 10th St.,Oklahoma City, Oklahoma 73117-1299

Telephone: 405-271-6868

Legislative Bills

Where do I obtain a copy of a legislative Senate or House bill?

You may mail your request to: State Capitol Bldg. Attn: Bill Distribution Office 2300 N Lincoln Blvd, RM 310 Oklahoma City, OK 73105

You may also find information about legislation on the Web site of the Oklahoma Legislature.

Municipalities and Town Governments

Are there state agencies to ensure that cities are operating within statutory requirements?

There are many state and local agencies that have statutory authority to investigate or audit allegations of wrongdoing within a municipality or township. If you have questions regarding the statutory operation of a municipality or township or you are wanting information concerning city ordinances, you should contact the Oklahoma Municipal League at the following address: 201 NE 23rd Street, Oklahoma City, OK 73105. Telephone: 405-528-7515

Open Meeting and Open Records

Where do I find information regarding open records?

You may submit your query in the legal research section located on our web page ( http://oklegal.onenet.net/ ) for O.S. Title 51 section 24A.1, entitled the Open Records Act. You may purchase a copy of the booklet that pertains to Open Meetings and Open Records in Oklahoma. A copy of the Oklahoma Open Meeting and Open Records laws from the Oklahoma Press Service, Inc., 3601 North Lincoln Blvd. Oklahoma City, Oklahoma, 73105-5499 or you may visit the OPA Web site.

Raffles

Are raffles legal for non-profit organizations?

For certain organizations, yes. Please view the following state statute that defines the law:

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A. A lottery is any scheme for the disposal or distribution of property by chance among persons who have paid, or promised, or agreed to pay any valuable consideration for the chance of obtaining such property, or a portion of it, or for any share of or interest in such property, upon any agreement, understanding or expectation that it is to be distributed or disposed of by a lot or chance, whether called a lottery, a raffle, or a gift enterprise, or by whatever name the same may be known. "Valuable consideration" shall be construed to mean money or goods of actual pecuniary value. Provided, it shall not be a violation of the lottery or gambling laws of this state for:

1. The Oklahoma Lottery Commission to conduct a lottery pursuant to the provisions of the Oklahoma Education Lottery Act;

2. A bona fide resident merchant or merchants of a city or town, acting in conjunction with the Chamber of Commerce or Commercial Club of this state thereof, to issue free of charge numbered tickets on sales of merchandise, the corresponding stub of one or more of which tickets to be drawn or chosen by lot by a representative or representatives of the Chamber of Commerce or of the Commercial Club in the manner set forth on the tickets, the numbered stub or stubs so drawn to entitle the holder of the corresponding numbered issued ticket to a valuable prize donated by the merchant;

3. A bona fide community chest welfare fund on a military post or reservation to issue numbered tickets in conjunction with voluntary contributions to the fund, the corresponding stub or stubs of one or more of the tickets to be drawn by lot under the supervision of a military commander, the stub or stubs so drawn entitling the ticket holder to a prize of some value. Provided, however, that no person shall sell tickets or receive contributions to the fund off the military reservation; or

4. a. A qualified organization to raise funds by issuing numbered tickets in conjunction with voluntary contributions to the qualified organization, the corresponding stub or stubs of one or more of the tickets to be drawn by lot under the supervision of an official of the qualified organization, the stub or stubs so drawn entitling the ticket holder to a prize. As used in this paragraph, "qualified organization" means:

(1) a church,

(2) a public or private school accredited by the State Department of Education or registered by the State Board of Education for purposes of participating in federal programs,

(3) a student group or organization affiliated with a public or private school qualified pursuant to division (2) of this subparagraph,

(4) a parent-teacher association or organization affiliated with a public or private school qualified pursuant to division (2) of this subparagraph,

(5) fire departments,

(6) police departments,

(7) organizations that are exempt from taxation pursuant to the provisions of subsection (c) of Section 501 of the United States Internal Revenue Code, as amended, 26 U.S.C., Section 501(c) et seq., or

(8) an "organization" as such term is defined in paragraph 20 of Section 402 of Title 3A of the Oklahoma Statutes.

b. Any raffle conducted by a qualified organization shall be conducted by members of the qualified organization without compensation to any member. The organization shall not hire or contract with any person or business association, corporation, partnership, limited partnership or limited liability company to conduct a raffle, to sell raffle tickets or to solicit contributions in connection with a raffle on behalf of the organization.

B. If the Oklahoma Education Lottery Act ceases to have the force and effect of law pursuant to Section 36 of the Oklahoma Education Lottery Act, the provisions of paragraph 3 of subsection A of this section shall cease to have the force and effect of law.

Removal from unwanted mailing and telemarketing lists

Who should I contact to remove my name from unwanted direct mailing and telephone telemarketing lists?

To remove your name from direct mailing lists, you may contact the following:

Mail Preference ServiceDirect Marketing AssociationPO Box 1559Carmel, NY 15012

To remove your name from telephone telemarketing lists, you may contact the following:

Telephone Preference ServiceDirect Marketing AssociationPO Box 1559Carmel, NY 15012

Page 3 of 4Oklahoma Office of the Attorney General Mike Hunter - Frequently Asked Questions

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IRSDepartment of the TreasuryInternal Revenue Service

www.irs.gov

Notice 1340(March 2005)

Tax-Exempt Organizations and Raffle Prizes -Reporting Requirements and Federal Income Tax Withholding

Tax-Exempt and Government Entities Division

This notice discusses federal tax reporting and income tax withholding requirements that apply to raffles conducted by organizationsexempt under section 501 of the Internal Revenue Code. A tax-exempt organization that sponsors raffles may be required to secure information about the winner(s) and file reports on the prizes with the Internal Revenue Service. The organization may also be required to withhold and remit federal income taxes on prizes.

Reporting Raffle Prizes

“Raffle” Defined: In general, a raffle is considered a form of lottery. As such, a raffle generally refers to a method for the distribution of prizes among persons who have paid for a chance to win such prizes, usually determined by the numbers, or symbols, on tickets drawn.

Generally, an exempt organization must report raffle prizes if (a) the amount paid reduced, at the exempt organization’s option, by the wager (the amount a person paid for the chance to win a prize), is $600 or more; and (b) the payout is at least 300 times theamount of the wager. The organization uses Form W-2G for this report.

Example 1: Wendy purchased a $1 ticket for a raffle conducted by X, an exempt organization. On October 31, 2004, the drawing was held and Wendy won $900. X must file Form W-2G with the IRS and give a copy of Form W-2G to Wendy.

A person receiving gambling winnings must furnish the exempt organization a statement on Form 5754 made under penalties of perjury stating his or her identity and the identity of any others entitled to the winnings (and their shares of the winnings.) When the person receiving winnings is not the actual winner, or is a member of a group of two or more winners on a single ticket, the recipient must furnish the exempt organization information listed on Form 5754, Statement by Person(s) Receiving Gambling Winnings, and the organization must file Forms W-2G based on that information. The organization must keep Form 5754 for four years and make it available for IRS inspection. (See the specific instructions for Form 5754 for more information.)

The exempt organization must file Forms W-2G with the IRS by the last day of February of the year after the year of the raffle. Use Form 1096, Annual Summary and Transmittal of U.S. Information Returns, to transmit Forms W-2G to the IRS. The organization must also issue Forms W-2G to prize recipients by January 31 of the year after the year of the raffle.

Withholding Tax on Raffle Prizes

Regular Gambling Withholding: An organization that pays raffle prizes must withhold 25% from the winnings and report this amount to the IRS on Form W-2G. This regular gambling withholding applies to winnings of more than $5,000. If the organization fails to withhold correctly, it is liable for the tax.

Example 2: Lou purchased a $1 ticket for a raffle conducted by X, an exempt organization. On October 31, 2004, the drawing was held and Lou won $6,000. Because the proceeds from the wager are greater than $5,000 ($6,000 prize minus $1 ticket cost), X must withhold $1,499.75 ($5,999 x 25%) from Lou’s winnings. If X fails to withhold $1,499.75 before distributing the prize, X is liable for the withholding tax.

Catalog Number 39810E

Backup Withholding: An organization is required to withhold 28 percent of the total proceeds if (1) the prize is otherwise subjectto reporting (i.e., the amount of the prize, less the amount wagered, is $600 or more and 300 times the amount of the wager), and(2) the winner fails to furnish a correct taxpayer identification number (social security number, individual taxpayer identificationnumber, or employer identification number). This is called backup withholding.

Noncash Prizes: For noncash prizes, the winner must pay the organization 25% of the fair market value of the prize minus the amount of the wager.

Example 3: Jason purchased a $1 ticket for a raffle conducted by X, an exempt organization. On October 31, 2004, the drawing was held and Jason won a car worth $10,000 (fair market value). Because the prize exceeds $5,000 and the fair market value of the car is $10,000, the tax on the fair market value of the prize is $2,499.75 [($10,000 minus $1 ticket cost) x 25%)]. Jason must pay $2,499.75 to X to remit to the IRS on his (Jason’s) behalf. X would indicate the fair market value of the prize ($10,000) in box 1 and the amount of the withholding tax paid ($2,499.75) in box 2 on Form W-2G.

Organization Pays Withholding Tax: If the organization, as part of the prize, pays the taxes required to be withheld, it must pay taxnot only on the fair market value of the prize less the wager, but also on the taxes it pays on behalf of the winner. This results in a grossed up prize requiring the use of an algebraic formula. Under this formula, the organization must pay withholding tax of 33.33% of the prize’s fair market value. The organization reports the grossed up amount of the prize (fair market value of prize plus amount of taxes paid on behalf of winner) in box 1 of Form W-2G, and the withholding tax in box 2 of Form W-2G.

Example 4: If in Example 3, X pays the withholding tax on Jason’s behalf, the withholding tax is $3,332.67 [($10,000 fair market value of prize minus $1 ticket cost) x 33.33%]. X must report $13,333 as the gross winnings in box 1 of Form W-2G, and $3,334.67 withholding tax in box 2.

Reporting and Paying Tax to the IRS

The organization must use Form 945, Annual Return of Withheld Federal Income Tax, to report and send withheld amounts to the IRS. This is NOT the same form used to report Federal income tax withheld and FICA with respect to employees. Form 945 is an annual return, and is due January 31 of the year after the year in which the taxes were withheld (for example, for taxes withheld in 2004, the return would be due January 31, 2005). Separate tax deposits are required for payroll and non-payroll withholding. Besure to mark the Form 945 checkbox on Form 8109, the Federal tax deposit coupon.

The organization must list the EIN (employer identification number) of the organization conducting the raffle on Forms W-2G,1096, and 945. If you have not secured an EIN, you may apply for one on Form SS-4, Application for Employer Identification Number, available from the IRS. You may also apply for an EIN on-line at www.irs.gov , under the topic Employer ID Numbers on the Businesses Contents page.

For more information, see IRS Publication 3079, Gaming Publication for Tax-Exempt Organizations, or call EO Customer AccountServices at 1-877-829-5500 (toll-free). IRS forms and publications can be ordered by calling toll-free 1-800-TAX-FORM (1-800-829-3676) or from the IRS Web site (www.irs.gov ).

Charitable Contributions

Substantiation and Disclosure Requirements

Tax Exempt and Government Entities

EXEMPT ORGANIZATIONS

Publication 1771 (Rev. 3-2016) Catalog Number 20054Q Department of the Treasury Internal Revenue Service www.irs.gov

Contents

Recordkeeping Rules ........................................................ 2

Written Acknowledgment .................................................. 2

Unreimbursed Expenses .................................................. 5

Written Disclosure ............................................................. 6

Further Information ........................................................... 7

1

Are you an organization that receives contributions of $250 or more?

or

Are you an organization that provides goods or services to donors who

make contributions of more than $75?

or

Are you a donor who makes contributions to a charity?

IRS Publication 1771, Charitable Contributions–Substantiation and Disclosure

Requirements, explains the federal tax law for organizations, such as charities and

churches, that receive tax-deductible charitable contributions and for taxpayers who make

contributions.

The IRS imposes recordkeeping and substantiation rules on donors of charitable

contributions and disclosure rules on charities that receive certain quid pro quo

contributions.

Donors must have a bank record or written communication from a charity for any

monetary contribution before the donors can claim a charitable contribution on their federal

income tax returns.

Donors are responsible for obtaining a written acknowledgment from a charity for any

single contribution of $250 or more before the donors can claim a charitable contribution on

their federal income tax returns.

Charitable organizations are required to provide a written disclosure to a donor who

receives goods or services in exchange for a single payment in excess of $75.

More on recordkeeping, written acknowledgments and written disclosures is addressed in

this publication. The rules in this publication do not apply to a donated motor vehicle, boat

or airplane if the claimed value exceeds $500. For information on vehicle donations, see

IRS Publication 4302, A Charity’s Guide to Vehicle Donation, and IRS Publication 4303, A

Donor’s Guide to Vehicle Donation.

For information about organizations that are qualified to receive charitable contributions,

see IRS Publication 526, Charitable Contributions. Publication 526 also describes

contributions you can (and cannot) deduct, and it explains deduction limits. For assistance

about valuing donated property, see IRS Publication 561, Determining the Value of Donated

Property.

2

Recordkeeping Rules

Requirement

A donor cannot claim a tax deduction for any contribution of cash, a check or other

monetary gift unless the donor maintains a record of the contribution in the form of either a

bank record (such as a cancelled check) or a written communication from the charity (such

as a receipt or letter) showing the name of the charity, the date of the contribution and the

amount of the contribution.

Payroll Deductions

For charitable contributions made by payroll deduction, the donor may use a pledge

card prepared by or at the direction of the charitable organization, along with one of the

following documents:

a pay stub,

Form W-2, Wage and Tax Statement, or

other employer-furnished document that shows the amount withheld and paid to a

charitable organization.

If a donor makes a single contribution of $250 or more by payroll deduction, the pledge

card or other document from the organization must also include a statement to the effect

that the organization does not provide goods or services in whole or partial consideration

for any contributions made to the organization by payroll deduction.

Each payroll deduction amount of $250 or more is treated as a separate contribution for

purposes of the $250 threshold requirement for written acknowledgments.

Written Acknowledgment

Requirement

A donor cannot claim a tax deduction for any single contribution of $250 or more unless

the donor obtains a contemporaneous, written acknowledgment of the contribution from

the recipient organization. An organization that does not acknowledge a contribution

incurs no penalty; but, without a written acknowledgment, the donor cannot claim the tax

deduction. Although it’s a donor’s responsibility to obtain a written acknowledgment, an

organization can assist a donor by providing a timely, written statement containing:

1. the name of organization

2. the amount of cash contribution

3. a description (but not the value) of non-cash contribution

4. a statement that no goods or services were provided by the organization in return for the

contribution, if that was the case

5. a description and good faith estimate of the value of goods or services, if any, that an

organization provided in return for the contribution

3

6. a statement that goods or services, if any, that an organization provided in return for

the contribution consisted entirely of intangible religious benefits (described later in this

publication), if that was the case

It isn’t necessary to include either the donor’s Social Security number or tax identification

number on the acknowledgment.

A separate acknowledgment may be provided for each single contribution of $250 or more,

or one acknowledgment, such as an annual summary, may be used to substantiate several

single contributions of $250 or more. There are no IRS forms for the acknowledgment.

Letters, postcards or computer-generated forms with the above information are acceptable.

An organization can provide either a paper copy of the acknowledgment to the donor,

or an organization can provide the acknowledgment electronically, such as via an email

addressed to the donor. A donor shouldn’t attach the acknowledgment to his or her

individual income tax return, but must retain it to substantiate the contribution. Separate

contributions of less than $250 will not be aggregated. An example of this could be weekly

offerings to a donor’s church of less than $250 even though the donor’s annual total

contributions are $250 or more.

Contemporaneous

Recipient organizations typically send written acknowledgments to donors no later

than January 31 of the year following the donation. For the written acknowledgment

to be considered contemporaneous with the contribution, a donor must receive the

acknowledgment by the earlier of:

the date on which the donor actually files his or her individual federal income tax return for

the year of the contribution; or

the due date (including extensions) of the return.

Goods and Services

The acknowledgment must describe goods or services an organization provides in

exchange for a contribution of $250 or more. It must also provide a good faith estimate of

the value of the goods or services because a donor must generally reduce the amount of

the contribution deduction by the fair market value of the goods and services provided by

the organization. Goods or services include cash, property, services, benefits or privileges.

However, there are important exceptions:

Token Exception — Insubstantial goods or services a charitable organization provides in

exchange for contributions do not have to be described in the acknowledgment.

Good and services are considered to be insubstantial if the payment occurs in the context

of a fund-raising campaign in which a charitable organization informs the donor of the

amount of the contribution that is a deductible contribution, and:

1. the fair market value of the benefits received does not exceed the lesser of 2 percent of

the payment or $106,* or

2. the payment is at least $53,* the only items provided bear the organization’s name or

logo (for example, calendars, mug or posters), and the cost of these items is within the

limit for “low-cost articles,” which is $10.60.*

*The dollar amounts are for 2016. Guideline amounts are adjusted for inflation. See IRS.gov

for annual inflation adjustment information.

4

Free, unordered low-cost articles are also considered to be insubstantial.

Example of a token exception: If a charitable organization gives a coffee mug bearing its

logo that costs the organization $10.60 or less to a donor who contributes $53 or more,

the organization may state that no goods or services were provided in return for the $53

contribution. The $53 is fully deductible.

Membership Benefits Exception — An annual membership benefit is also considered to be

insubstantial if it is provided in exchange for an annual payment of $75 or less and consists

of annual recurring rights or privileges, such as:

1. free or discounted admissions to the charitable organization’s facilities or events

2. discounts on purchases from the organization’s gift shop

3. free or discounted parking

4. free or discounted admission to member-only events sponsored by an organization,

where a per-person cost (not including overhead) is within the “low-cost articles” limits

Example of a membership benefits exception: If a charitable organization offers a $75

annual membership that allows free admission to all of its weekly events, plus a $20

poster, a written acknowledgment need only mention the $20 value of the poster, since the

free admission would be considered insubstantial and, therefore, would be disregarded.

Intangible Religious Benefits Exception — If a religious organization provides only

“intangible religious benefits” to a contributor, the acknowledgment does not need

to describe or value those benefits. It can simply state that the organization provided

intangible religious benefits to the contributor.

What are “intangible religious benefits”? Generally, they are benefits provided by a tax-

exempt organization operated exclusively for religious purposes, and are not usually sold

in commercial transactions outside a donative (gift) context. Examples include admission

to a religious ceremony and a de minimis tangible benefit, such as wine used in a religious

ceremony. Benefits that are not intangible religious benefits include education leading to a

recognized degree, travel services and consumer goods.

5

Unreimbursed Expenses

If a donor makes a single contribution of $250 or more in the form of unreimbursed

expenses, for example, out-of-pocket transportation expenses incurred to perform donated

services for an organization, then the donor must obtain a written acknowledgment from

the organization containing a:

description of the services provided by the donor

statement of whether the organization provided goods or services in return for the

contribution

description and good faith estimate of the value of goods or services, if any, that the

organization provided in return for the contribution

statement that goods or services, if any, that the organization provided in return for the

contribution consisted entirely of intangible religious benefits (described earlier in this

publication), if that was the case

In addition, a donor must maintain adequate records of the unreimbursed expenses. See

Publication 526, Charitable Contributions, for a description of records that will substantiate

a donor’s contribution deductions.

Example of an unreimbursed expense: A chosen representative to an annual convention

of a charitable organization purchases an airline ticket to travel to the convention. The

organization doesn’t reimburse the delegate for the $500 ticket. The representative

should keep a record of the expenditure, such as a copy of the ticket. The representative

should obtain from the organization a description of the services that the representative

provided and a statement that the representative received no goods or services from the

organization.

Examples of Written Acknowledgments

“Thank you for your cash contribution of $300 that (organization’s name) received

on December 12, 2015. No goods or services were provided in exchange for your

contribution.”

“Thank you for your cash contribution of $350 that (organization’s name) received on May

6, 2015. In exchange for your contribution, we gave you a cookbook with an estimated fair

market value of $60.”

“Thank you for your contribution of a used oak baby crib and matching dresser that

(organization’s name) received on March 15, 2015. No goods or services were provided in

exchange for your contribution.”

The following is an example of a written acknowledgment when a charity accepts

contributions in the name of one of its activities:

Thank you for your contribution of $450 to (organization’s name) made in the name of its

Special Relief Fund program. No goods or services were provided in exchange for your

contribution.”

6

Written Disclosure

Requirement

Donors may only take a contribution deduction to the extent that their contributions

exceed the fair market value of the goods or services the donors receive in return for

the contributions; therefore, donors need to know the value of the goods or services. An

organization must provide a written disclosure statement to a donor who makes a payment

exceeding $75 partly as a contribution and partly for goods and services provided by the

organization. A contribution made by a donor in exchange for goods or services is known

as a quid pro quo contribution.

Example of a quid pro quo contribution: A donor gives a charitable organization $100

in exchange for a concert ticket with a fair market value of $40. In this example, the

donor’s tax deduction may not exceed $60. Because the donor’s payment (quid pro quo

contribution) exceeds $75, the charitable organization must furnish a disclosure statement

to the donor, even though the deductible amount doesn’t exceed $75.

A required written disclosure statement must:

inform a donor that the amount of the contribution that is deductible for federal income

tax purposes is limited to the excess of money (and the fair market value of property other

than money) contributed by the donor over the value of goods or services provided by the

organization

provide a donor with a good-faith estimate of the fair market value of the goods or services

An organization must furnish a disclosure statement in connection with either the

solicitation or the receipt of the quid pro quo contribution. The statement must be in

writing and must be made in a manner that is likely to come to the attention of the donor.

For example, a disclosure in small print within a larger document might not meet this

requirement.

Exception

A written disclosure statement is not required:

where the goods or services given to a donor meet the “token exception,” the “membership

benefits exception” or the “intangible religious benefits exception” described earlier

where there is no donative element involved in a particular transaction, such as in a typical

museum gift shop sale

Penalty

A penalty is imposed on charities that do not meet the written disclosure requirement. The

penalty is $10 per contribution, not to exceed $5,000 per fundraising event or mailing. An

organization may avoid the penalty if it can show that failure to meet the requirements was

due to reasonable cause.

7

Further Information

written acknowledgment — Detailed rules for contemporaneous written acknowledgments

are contained in Section 170(f)(8) of the Internal Revenue Code and Section 1.170A-13(f) of

the Income Tax Regulations. The “low-cost article” rules are in Code Section 513(h)(2).

written disclosure — Detailed rules for written disclosure statements are contained in

Code Section 6115 and I.T. Regulations Section 1.6115-1. The penalty rules are contained in

Code Section 6714.

IRS publications — Order publications by calling the IRS at (800) 829-3676. Download IRS

publications at www.irs.gov.

IRS customer service — Telephone assistance for general tax information is available by

calling IRS customer service toll-free at (800) 829-1040.

EO customer service — Telephone assistance specific to exempt organizations is available

by calling IRS Exempt Organizations customer account services toll-free at (877) 829-5500.

EO website — Visit Exempt Organizations website at irs.gov/eo.

EO Update — Subscribe to IRS Exempt Organizations’ EO Update, a regular email

newsletter with information for tax-exempt organizations and tax practitioners who

represent them.

StayExempt — An IRS interactive web-based training program covering tax compliance

issues confronted by small and mid-sized tax-exempt organizations.