Quid Pro Quo Contributions for Charitable Organizations

Quid pro quo translated from Latin means “something for something.” In the non-profit world, this is most often associated with fundraising events. A quid pro quo contribution is a payment made to a charitable organization by a donor partly as a contribution and partly for goods or services provided to the donor by the organization. Common examples are golf events, fundraising dinners, etc. For instance, the organization may charge a $100 registration fee for the golf event where the round of golf is valued at $60 and $40 is considered a contribution. Likewise with a $100 dinner, the value of the dinner may be $30 and $70 is considered a contribution. So what does this mean for charitable organizations?

If the value of the entire payment is more than $75, the organization must provide donors with a written disclosure. In the above examples, even though the charitable contributions are below $75, it does not matter as the entire payment is more than $75. The required written disclosure statement must:

• Inform donors of the amount that is considered a deductible charitable contribution for federal income tax purposes.
• Provide the donor with a good faith estimate of the fair value of the goods or services that the donor received.

The organization must furnish the statement in connection with either the solicitation or the receipt of the quid pro quo contribution. If the disclosure statement is furnished in connection with a particular solicitation, it is not necessary for the organization to provide another statement when the associated contribution is actually received.

A disclosure statement is not required if the good or service received is of insubstantial value, which generally means that the value of the good or service received by the donor does not exceed two percent of the total payment or $96 (amounts are adjusted annually for inflation), whichever is less. Additionally, no disclosure is required if there is no donative intent. An example of this is when someone purchases an item from a museum's gift shop.

Organization can face penalties from the IRS for failure to comply with the regulations. The penalty for noncompliance is $10 per contribution, not to exceed $5,000 per fundraising event. There are also some additional exceptions where you do not need to furnish a disclosure statement, so it is always a good idea to check with your accountant if you are unsure if a disclosure is required. Additional information regarding disclosure requirements for charitable organizations can be found at: IRS Publication 1771, Charitable Contributions – Substantiation and Disclosure Requirements (http://www.irs.gov/pub/irs-pdf/p1771.pdf).