Deductibility, Substantiation, and Disclosure of Certain Charitable Contributions

DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[IA-44-94]

RIN 1545-AS94

Deductibility, Substantiation, and Disclosure of Certain

Charitable Contributions

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Notice of proposed rulemaking and notice of public hearing.

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SUMMARY: This document contains proposed regulations that provide

guidance regarding the allowance of certain charitable contribution

deductions, the substantiation requirements for charitable

contributions of $250 or more, and the disclosure requirements for quid

pro quo contributions in excess of $75. The proposed regulations will

affect organizations described in section 170(c) and individuals and

entities that make payments to those organizations.

DATES: Written comments must be received by November 2, 1995. Requests

to appear and outlines of oral comments to be presented at the public

hearing scheduled for November 1, 1995, must be received by October 11,

1995.

ADDRESSES: Send submissions to: CC:DOM:CORP:T:R(IA-44-94), Room 5228,

Internal Revenue Service, POB 7604, Ben Franklin Station, Washington,

D.C. 20044. In the alternative, submissions may be hand delivered

between the hours of 8 a.m. and 5 p.m. to: CC:DOM:CORP:T:R(IA-44-94),

Courier's Desk, Internal Revenue Service, 1111 Constitution Avenue,

N.W., Washington, D.C. The Public Hearing scheduled for November 1,

1995 at 10:00 a.m., will be held in the IRS Auditorium, 7th floor, 1111

Constitution Avenue, N.W., Washington, D.C.

FOR FURTHER INFORMATION CONTACT: Concerning the regulations, Jefferson

K. Fox, 202-622-4930; concerning submissions and the hearing, Christina

Vasquez, 202-622-6803. These are not toll-free numbers.

SUPPLEMENTARY INFORMATION:

Paperwork Reduction Act

The collections of information contained in this notice of proposed

rulemaking have been submitted to the Office of Management and Budget

for review in accordance with the Paperwork Reduction Act (44 U.S.C.

3504(h)). Comments on the collections of information should be sent to

the Office of Management and Budget, Attn: Desk Officer for the

Department of the Treasury, Office of Information and Regulatory

Affairs, Washington, D.C. 20503, with copies to the Internal Revenue

Service, Attn: IRS Reports Clearance Officer, PC:FP, Washington, DC

20224.

The collections of information are in Secs. 1.170A-13(f)(1),

(f)(10), (f)(14), and 1.6115-1. This information is required by the IRS

to determine the deductibility of certain charitable contributions. The

likely respondents are individuals or households, business or other

for-profit institutions, nonprofit institutions, and small businesses

or organizations.

Estimated total annual recordkeeping burden: 100,000 hours.

Estimated average annual burden per recordkeeper: .10 hour.

Estimated number of recordkeepers: 1,000,000.

Estimated total annual reporting burden: 1,875,000 hours.

Estimated average burden per respondent: 2.5 hours.

Estimated number of respondents: 750,000.

Estimated frequency of responses: On occasion.

Background

This document contains proposed amendments to the Income Tax

Regulations (26 CFR part 1) that provide guidance under sections

170(a), 170(f)(8), and 6115 of the Internal Revenue Code of 1986.

Sections 170(f)(8) and 6115 were added to the Code by sections

13172 and 13173 of the Omnibus Budget Reconciliation Act of 1993, Pub.

L. No. 103-66, 107 Stat. 455, 1993-3 C.B. 43. Temporary regulations (TD

8544) and a notice of proposed rulemaking by cross-reference to

temporary regulations under section 170(f)(8) were published in the

Federal Register for May 27, 1994 (52 FR 27458, 27515). The temporary

and proposed regulations primarily address contributions made by

payroll deduction and a donor's receipt of goods or services with

insubstantial value. A public hearing was held on November 10, 1994. On

March 22, 1995, the Service released Notice 95-15, which was published

in 1995-15 I.R.B., dated April 10, 1995. Notice 95-15 provides

transitional relief (for 1994) from the substantiation requirement.

Explanation of Statutory Provisions

Section 170(a) allows a deduction for certain charitable

contributions to or for the use of an organization described in section

170(c). Under section 170(f)(8),

[[Page 39897]]

taxpayers who claim a deduction for a charitable contribution of $250

or more are responsible for obtaining from the donee organization, and

maintaining in their records, substantiation of that contribution. See

H.R. Conf. Rep. 2264, 103d Cong., 1st Sess. 565 (1993). Specifically,

section 170(f)(8) provides that no charitable contribution deduction

will be allowed under section 170(a) for a contribution of $250 or more

unless the taxpayer substantiates the contribution with a

contemporaneous written acknowledgment from the donee organization.

Section 170(f)(8)(B) provides that an acknowledgment meets the

requirements of that section if it includes the following information:

(1) the amount of cash paid and a description (but not necessarily the

value) of any property other than cash transferred to a donee

organization; (2) whether or not the donee organization provided any

goods or services in consideration for the cash or property; and (3) a

description and good faith estimate of the value of any goods or

services provided by the donee organization in consideration for the

cash or property. A written acknowledgment is contemporaneous, within

the meaning of section 170(f)(8)(C), if it is obtained on or before the

earlier of: (1) the date the taxpayer files its original return for the

taxable year in which the contribution was made, or (2) the due date

(including extensions) for filing the taxpayer's original return for

that year.

Section 170(f)(8) does not prescribe a format for the written

acknowledgment. Any document that contains the required information,

including but not limited to a letter, postcard, computer-generated

form, or tax form, is an acceptable means of providing a taxpayer with

a written acknowledgment. For example, a private foundation may use a

copy of its Form 990-PF, Return of Private Foundation, as a written

acknowledgment for a taxpayer's charitable contribution of $250 or more

if it contains the necessary information. Any documents that are used

as a written acknowledgment of a taxpayer's charitable contribution

must be contemporaneous within the meaning of section 170(f)(8)(C).

Section 6115 generally requires an organization described in

section 170(c) that receives a ``quid pro quo contribution'' in excess

of $75 to provide a written disclosure statement to the donor. The

written disclosure statement must contain the following information:

(1) a statement that the deductibility of the donor's contribution is

limited to the excess of the amount of any money or the value of any

property contributed by the donor over the value of the goods or

services provided to the donor by the organization, and (2) a good

faith estimate of the value of the goods or services provided by the

organization. Section 6115(b) defines a quid pro quo contribution as a

payment made partly as a contribution and partly in consideration for

goods or services provided by the organization.

Explanation of Regulatory Provisions

Deductibility of a Payment in Exchange for Consideration

In United States v. American Bar Endowment, 477 U.S. 105 (1986),

the Supreme Court set forth a two-part test for determining whether a

payment that is partly in consideration for goods or services is

deductible under section 170(a). First, a payment to an organization

described in section 170(c) is deductible only if, and to the extent

that, the payment exceeds the fair market value of the benefits

received. Second, the excess payment must be made with the intent to

make a charitable contribution. See also Rev. Rul. 67-246, 1967-2 C.B.

104.

The proposed regulations adopt this two-part test for determining

whether a payment is deductible under section 170(a). Specifically, the

regulations provide that, in order for a charitable contribution

deduction to be allowed, a taxpayer must intend to make a payment in an

amount that exceeds the fair market value of the goods or services

received in return, and must actually make a payment in an amount that

exceeds that fair market value.

Certain Goods or Services Disregarded

Under current law, a taxpayer who receives membership benefits in

return for a payment to an organization described in section 170(c) may

not claim a charitable contribution deduction for more than the amount

by which the payment exceeds the fair market value of the membership

benefits. United States v. American Bar Endowment, 477 U.S. 105 (1986).

See also Rev. Rul. 68-432, 1968-2 C.B. 104; Rev. Rul. 67-246, 1967-2

C.B. 104. Accordingly, taxpayers and donee organizations must determine

the fair market value of any membership benefits the donee organization

provides to its donors.

It is often difficult to value membership benefits, especially

rights or privileges that are not limited as to use, such as free or

discounted admission or parking, and gift shop discounts. In the course

of preparing these proposed regulations, the IRS and the Treasury

Department have considered the extent of the difficulty of valuation

and have concluded that it is appropriate to provide limited relief

with respect to certain types of customary membership benefits while

preserving the IRS's ability to administer the law fairly and

consistently. Accordingly, the proposed regulations provide that both

the donee organization and the donor may disregard certain membership

benefits when they are provided in return for a payment to the

organization.

Section 1.170A-13T(a) already allows donors and donee organizations

to disregard goods or services that are treated as having insubstantial

value under existing IRS guidelines. See Rev. Proc. 90-12, 1990-1 C.B.

471, and Rev. Proc. 92-49, 1992-1 C.B. 987. The guidelines cover low

cost articles (items costing $6.60 or less for 1995), newsletters that

are not commercial quality publications, and benefits worth 2% or less

of a payment, up to a maximum of $66 for 1995. The substance of this

section has been incorporated into section 1.170A-13(f)(8)(i).

Under the proposed regulations, other benefits may be disregarded

only if they are given as part of an annual membership offered in

return for a payment of $75 or less and fall into one of two

categories. The first category is admission to events that are open

only to members and for which the donee organization reasonably

projects that the cost per person (excluding allocable overhead) for

each event will be less than or equal to the standard for low cost

articles under section 513(h)(2)(C) ($6.60 for 1995). An example is a

modest reception where light refreshments are served to members of a

donee organization before an event. The second category is rights or

privileges that members can exercise frequently during the membership

period. An example is free admission to a museum.

The items described in the previous two paragraphs may be

disregarded for purposes of determining whether the taxpayer has made a

charitable contribution, the amount of any charitable contribution that

has been made, and whether any goods or services have been provided

that must be substantiated under section 170(f)(8) or disclosed under

section 6115. Thus, the effect of these provisions is broader than that

of the temporary regulations, which provided less comprehensive relief

and then only for items of insubstantial value.

[[Page 39898]]

Goods or Services Provided to Donor's Employees

The proposed regulations also contain relief where donee

organizations provide goods or services to the employees of their

donors. Goods or services that may be disregarded for the purposes

specified above when provided directly to a donor may also be

disregarded for the same purposes when provided to a donor's employees.

Any other goods or services provided to the donor's employees must

be taken into account for purposes of calculating any charitable

contribution the donor claims as a deduction. If a contemporaneous

written acknowledgment of the donor's contribution is required under

section 170(f)(8), it must include a description of these goods or

services. However, the proposed regulations provide that the

contemporaneous written acknowledgment may omit the otherwise required

good faith estimate of the value of these goods or services; similarly,

the proposed regulations provide that a written disclosure statement

required by section 6115 for a payment made in exchange for these goods

or services may include a description of them in lieu of the otherwise

required good faith estimate of their value.

Good Faith Estimate

For purposes of sections 170 and 6115, the proposed regulations

define a good faith estimate of the value of goods or services provided

by an organization described in section 170(c) as an estimate of the

fair market value of those goods or services. The fair market value of

goods or services may differ from their cost to the donee organization.

The organization may use any reasonable methodology that it applies in

good faith in making the good faith estimate. However, a taxpayer is

not required to determine how the donee organization made the estimate.

The proposed regulations further provide that a donee organization

may make a good faith estimate of the value of goods or services that

are not available in a commercial transaction by reference to the fair

market value of similar or comparable goods or services. Goods or

services may be similar or comparable even though they do not have the

unique qualities of the goods or services that are being valued.

Reliance on Donee Estimates

The proposed regulations provide that a taxpayer generally may

treat an estimate of the value of goods or services as the fair market

value for purposes of section 170(a) if the estimate is in a

contemporaneous written acknowledgment (as required by section

170(f)(8)) or a written disclosure statement (as required by section

6115). Thus, a taxpayer that makes a payment to an organization

described in section 170(c) and receives an item in return generally

may rely on the organization's estimate of the value of the item in

calculating its charitable contribution deduction if the estimate is

included in a contemporaneous written acknowledgment or a written

disclosure statement.

However, a taxpayer may not treat an estimate as the fair market

value of the goods or services if the taxpayer knows, or has reason to

know, that such treatment is unreasonable. For example, if the taxpayer

is a dealer in the type of goods or services it receives from an

organization described in section 170(c), or if the goods or services

are readily valued, it is unreasonable for the taxpayer to treat the

donee organization's estimate as the fair market value of the goods or

services if that estimate is in error and the taxpayer knows, or has

reason to know, the fair market value of the goods or services.

An estimate of the value of goods or services in a contemporaneous

written acknowledgment or written disclosure statement is not in error

if the estimate is within the typical range of retail prices for the

goods or services. For example, if an organization provides a book in

exchange for a $100 payment, and the book is sold at retail prices

ranging from $18 to $25, the taxpayer may rely on any estimate of the

organization that is within the $18 to $25 range.

Substantiation of Contributions to a Split Interest Trust

Section 170(f)(8)(E) provides the Secretary with authority to issue

regulations that relieve taxpayers, in appropriate cases, from some or

all of the requirements of section 170(f)(8).

The grantor of a charitable lead trust, a charitable remainder

annuity trust, or a charitable remainder unitrust is not required to

designate a specific organization as the charitable beneficiary at the

time the grantor transfers property to the trust. As a result, there is

often no designated donee organization available to provide a

contemporaneous written acknowledgment to a taxpayer. In addition, even

if a specific beneficiary is designated, the designation is often

revocable. In contrast, a pooled income fund is created and maintained

by one charitable organization to which the remainder interest is

contributed.

The IRS and the Treasury Department believe that for these reasons

it is appropriate to exempt from the requirements of section 170(f)(8)

transfers of property to charitable lead trusts, charitable remainder

annuity trusts, or charitable remainder unitrusts while not exempting

transfers to pooled income funds.

Substantiation of Out-of-Pocket Expenses

Section 1.170A-1(g) provides that an unreimbursed expenditure made

incident to the rendition of services to a donee organization may be a

deductible charitable contribution. Some taxpayers may make individual

unreimbursed expenditures of $250 or more (such as for a plane ticket)

that will require substantiation under section 170(f)(8). The IRS and

the Treasury Department recognize that a donee organization typically

has no knowledge of the amount of out-of-pocket expenditures incurred

by a taxpayer, and therefore, would have difficulty providing taxpayers

with substantiation of unreimbursed expenditures.

To address this concern, the proposed regulations provide that

where a taxpayer has individual unreimbursed expenditures made incident

to the rendition of services and of an amount requiring substantiation,

the expenditures may be substantiated by the donor's normal records

(see Sec. 1.170A-13(a)) and an abbreviated written acknowledgment

provided by the donee organization. This written acknowledgment from

the donee organization must contain a description of the services

provided by the donor, the date the services were provided, whether or

not the donee organization provided any goods or services in return

and, if the donee organization provided any goods or services, a

description and good faith estimate of the fair market value of those

goods or services. This written acknowledgment must be obtained by the

taxpayer on or before the earlier of the date the taxpayer files its

original return for the taxable year in which the contribution was

made, or the due date (including extensions) for filing the taxpayer's

original return for that year.

Contributions Made by a Partnership or an S Corporation

The proposed regulations provide that if a partnership or an S

corporation makes a charitable contribution of $250 or more, the

partnership or S corporation will be treated as the taxpayer for

purposes of section 170(f)(8). Therefore, the partnership or S

[[Page 39899]]

corporation is required to obtain a contemporaneous written

acknowledgment for each charitable contribution of $250 or more that it

reports on its income tax return (regardless of whether any partner's

or shareholder's distributive share of the contribution is less than

$250). Because the partnership or S corporation must satisfy the

requirements of section 170(f)(8) in order to list charitable

contributions of $250 or more on the schedules provided to its partners

or shareholders, the partners and shareholders are not required to

obtain any additional contemporaneous written acknowledgments before

taking a deduction for their allocable shares of the partnership's or S

corporation's charitable contribution.

Contributions Made by Payroll Deduction

These proposed regulations reserve two paragraphs so that the

balance of the temporary and proposed regulations published in the

Federal Register for May 27, 1994, may be incorporated into

Sec. 1.170A-13(f) upon finalization.

Proposed Effective Date

These regulations are proposed to be effective on the date they are

published in the Federal Register as final regulations. Taxpayers may,

however, rely on the proposed regulations for contributions made on or

after January 1, 1994.

Special Analyses

It has been determined that this notice of proposed rulemaking is

not a significant regulatory action as defined in EO 12866. Therefore,

a regulatory assessment is not required. It has also been determined

that section 553(b) of the Administrative Procedure Act (5 U.S.C.

chapter 5) and the Regulatory Flexibility Act (5 U.S.C. chapter 6) do

not apply to these regulations and, therefore, a Regulatory Flexibility

Analysis is not required. Pursuant to section 7805(f) of the Internal

Revenue Code, this notice of proposed rulemaking will be submitted to

the Chief Counsel for Advocacy of the Small Business Administration for

comment on its impact on small businesses.

Comments and Public Hearing

Before the proposed regulations are adopted as final regulations,

consideration will be given to any written comments (a signed original

and eight copies) that are submitted timely to the IRS. All comments

will be available for public inspection and copying.

A public hearing has been scheduled for November 1, 1995, at 10:00

a.m. in the IRS Auditorium, 7th floor, 1111 Constitution Avenue, N.W.,

Washington, D.C. Because of access restrictions, visitors will not be

admitted beyond the Internal Revenue Building lobby more than 15

minutes before the hearing is scheduled to begin.

The rules of 26 CFR 601.601(a)(3) apply to the hearing.

Persons who wish to present oral comments at the hearing must

submit written comments by November 2, 1995 and submit an outline (a

signed original and eight copies) of the topics to be discussed and the

time to be devoted to each topic by October 11, 1995.

A period of 10 minutes will be allotted to each person for making

comments.

An agenda showing the scheduling of the speakers will be prepared

after the deadline for receiving outlines has passed. Copies of the

agenda will be available free of charge at the hearing.

Drafting Information

The principal author of these regulations is Rosemary DeLeone,

Office of the Assistant Chief Counsel (Income Tax and Accounting),

Internal Revenue Service. However, other personnel from the IRS and the

Treasury Department participated in their development.

List of Subjects in 26 CFR Part 1

Income taxes, Reporting and recordkeeping requirements.

Proposed Amendments to the Regulations

Accordingly, 26 CFR part 1 is proposed to be amended as follows:

PART 1--INCOME TAXES

Paragraph 1. The authority citation for part 1 is amended by adding

a new entry for section 1.170A-1 and revising the entry for section

1.170A-13 to read as follows:

Authority: 26 U.S.C. 7805. Section 1.170A-1 also issued under 26

U.S.C. 170(a). Section 1.170A-13 also issued under 26 U.S.C.

170(f)(8). * * *

Par. 2. Section 1.170A-1 is amended as follows:

1. Paragraph (h) is redesignated as paragraph (j).

2. Paragraph (i) is redesignated as paragraph (k) and is revised.

3. Paragraph (h) is added.

4. Paragraph (i) is added and reserved.

The additions and revisions read as follows:

Sec. 1.170A-1 Charitable, etc., contributions and gifts; allowance of

deduction.

* * * * *

(h) Payment in exchange for consideration--(1) Burden on taxpayer

to show that all or part of payment is a charitable contribution or

gift. No part of a payment that a taxpayer makes to or for the use of

an organization described in section 170(c) that is in consideration

for goods or services (as defined in Sec. 1.170A-13(f)(5)) is a

contribution or gift within the meaning of section 170(c) unless the

taxpayer--

(i) Intends to make a payment in an amount that exceeds the fair

market value of the goods or services; and

(ii) Makes a payment in an amount that exceeds the fair market

value of the goods or services.

(2) Limitation on amount deductible--(i) In general. The charitable

contribution deduction under section 170(a) for a payment a taxpayer

makes partly in consideration for goods or services may not exceed the

excess of--

(A) The amount of any cash paid and the fair market value of any

property (other than cash) transferred by the taxpayer to an

organization described in section 170(c); over

(B) The fair market value of the goods or services the organization

provides in return.

(ii) Special rules. For special limits on the deduction for

charitable contributions of ordinary income and capital gain property,

see section 170(e) and Secs. 1.170A-4 and 1.170A-4A.

(3) Certain goods or services disregarded. For purposes of section

170(a) and paragraphs (h)(1) and (h)(2) of this section, goods or

services described in Sec. 1.170A-13(f)(8)(i) or Sec. 1.170A-

13(f)(9)(i) are disregarded.

(4) Donee estimates of the value of goods or services may be

treated as fair market value--(i) In general. For purposes of section

170(a), a taxpayer may rely on either a contemporaneous written

acknowledgment provided under section 170(f)(8) and Sec. 1.170A-13(f)

or a written disclosure statement provided under section 6115 for the

fair market value of any goods or services provided to the taxpayer by

the donee organization.

(ii) Exception. A taxpayer may not treat an estimate of the value

of goods or services as their fair market value if the taxpayer knows,

or has reason to know, that such treatment is unreasonable. For

example, if the taxpayer knows, or has reason to know, that there is an

error in an estimate provided by an organization described in section

170(c) pertaining to goods or services that have a readily

ascertainable value, it is unreasonable for the taxpayer to treat the

estimate as the fair market value of the goods or services. Similarly,

if the taxpayer is a

[[Page 39900]]

dealer in the type of goods or services provided in consideration for

its payment and knows, or has reason to know, that the estimate is in

error, it is unreasonable for the taxpayer to treat the estimate as the

fair market value of the goods or services.

(5) Examples. The following examples illustrate the rules of this

paragraph (h).

Example 1. Certain goods or services disregarded. Taxpayer makes

a $50 payment to Charity B, an organization described in section

170(c), in exchange for a family membership. The family membership

entitles Taxpayer and members of Taxpayer's family to certain

benefits. These benefits include free admission to weekly poetry

readings, discounts on merchandise sold by B in its gift shop or by

mail order, and invitations to special events for members only, such

as lectures or informal receptions. When B first offers its

membership package for the year, B reasonably projects that each

special event for members will have a cost to B, excluding any

allocable overhead, of $5 or less per person. Because the family

membership benefits are disregarded pursuant to Sec. 1.170A-

13(f)(8)(i), Taxpayer may treat the $50 payment as a contribution or

gift within the meaning of section 170(c), regardless of Taxpayer's

intent and whether or not the payment exceeds the fair market value

of the goods or services. Furthermore, any charitable contribution

deduction available to Taxpayer may be calculated without regard to

the membership benefits.

Example 2. Treatment of good faith estimate at auction as the

fair market value. Taxpayer attends an auction held by Charity C, an

organization described in section 170(c). Prior to the auction, C

publishes a catalog that meets the requirements for a written

disclosure statement under section 6115(a) (including C's good faith

estimate of the value of items that will be available for bidding).

A representative of C gives a copy of the catalog to each individual

(including Taxpayer) who attends the auction. Taxpayer notes that in

the catalog C's estimate of the value of a vase is $100. Taxpayer

has no reason to doubt the accuracy of this estimate. Taxpayer

successfully bids and pays $500 for the vase. Because Taxpayer knew,

prior to making her payment, that the estimate in the catalog was

less than the amount of her payment, Taxpayer satisfies the

requirement of paragraph (h)(1)(i) of this section. Because Taxpayer

makes a payment in an amount that exceeds that estimate, Taxpayer

satisfies the requirements of paragraph (h)(1)(ii) of this section.

Taxpayer may treat C's estimate of the value of the vase as its fair

market value in determining the amount of her charitable

contribution deduction.

Example 3. Good faith estimate not in error. Taxpayer makes a

$200 payment to Charity D, an organization described in section

170(c). In return for Taxpayer's payment, D gives Taxpayer a book

that Taxpayer could buy at retail prices typically ranging from $18

to $25. D provides Taxpayer with a good faith estimate, in a written

disclosure statement under section 6115(a), of $20 for the value of

the book. Because the estimate is within the range of typical retail

prices for the book, the estimate contained in the written

disclosure statement is not in error. Although Taxpayer knows that

the book is sold for as much as $25, Taxpayer may treat the estimate

of $20 as the fair market value of the book in determining the

amount of his charitable contribution deduction.

(i) [Reserved]

* * * * *

(k) Effective date. In general this section applies to

contributions made in taxable years beginning after December 31, 1969.

Paragraph (j)(11) of this section, however, applies only to out-of-

pocket expenditures made in taxable years beginning after December 31,

1976. In addition, paragraph (h) of this section applies only to

payments made on or after the date these regulations are published in

the Federal Register as final regulations. However, taxpayers may rely

on the rules of paragraph (h) of this section for payments made on or

after January 1, 1994.

Par. 3. Section 1.170A-13 is amended as follows:

1. Paragraph (e) is added and reserved.

2. Paragraph (f) is added.

The additions read as follows:

Sec. 1.170A-13 Recordkeeping and return requirements for deductions

for charitable contributions.

* * * * *

(e) [Reserved]

(f) Substantiation of charitable contributions of $250 or more--(1)

In general. No deduction is allowed under section 170(a) for all or

part of any contribution of $250 or more unless the taxpayer

substantiates the contribution with a contemporaneous written

acknowledgment from a donee organization. Section 170(f)(8) does not

apply to a payment of $250 or more if the amount contributed (as

determined under Sec. 1.170A-1(h)) is less than $250.

(2) Written acknowledgment. Except as otherwise provided in

paragraphs (f)(8) and (f)(9) of this section, a written acknowledgment

from a donee organization must provide the following information--

(i) The amount of any cash the taxpayer paid and a description (but

not necessarily the value) of any property other than cash the taxpayer

transferred to the donee organization;

(ii) A statement of whether or not the donee organization provides

any goods or services in consideration, in whole or in part, for any of

the cash or other property transferred to the donee organization;

(iii) If the donee organization provides any goods or services

other than intangible religious benefits (as described in section

170(f)(8)), a description and good faith estimate of the value of those

goods or services; and

(iv) If the donee organization provides any intangible religious

benefits, a statement to that effect.

(3) Contemporaneous. A written acknowledgment is contemporaneous if

it is obtained by the taxpayer on or before the earlier of--

(i) The date the taxpayer files its original return for the taxable

year in which the contribution was made; or

(ii) The due date (including extensions) for filing the taxpayer's

original return for that year.

(4) Donee organization. For purposes of this paragraph (f), a donee

organization is an organization described in section 170(c).

(5) Goods or services. Goods or services means cash, property,

services, benefits, and privileges.

(6) In consideration for. A donee organization provides goods or

services in consideration for a taxpayer's payment if, at the time the

taxpayer makes the payment to the donee organization, the taxpayer

receives or expects to receive goods or services in exchange for that

payment. Goods or services a donee organization provides in

consideration for a payment by a taxpayer include goods or services

provided in a year other than the year in which the taxpayer makes the

payment to the donee organization.

(7) Good faith estimate. For purposes of this section, good faith

estimate means the donee organization's estimate of the fair market

value of any goods or services, without regard to the manner in which

the organization in fact made that estimate. See Sec. 1.170A-1(h)(4)

for rules regarding when a taxpayer may treat a donee organization's

estimate of the value of goods or services as the fair market value.

(8) Certain goods or services disregarded--(i) In general. For

purposes of section 170(f)(8), the following goods or services are

disregarded--

(A) Goods or services that have insubstantial value under the

guidelines provided in Revenue Procedures 90-12, 1990-1 C.B. 471, 92-

49, 1992-1 C.B. 987, and any successor documents. (See

Sec. 601.601(d)(2)(ii) of the Statement of Procedural Rules, 26 CFR

part 601.); and

(B) Annual membership benefits offered to a taxpayer for a payment

of $75 or less per year that consist of--

(1) Any rights or privileges, other than those described in section

170(l), that the taxpayer can exercise frequently during the membership

period. Examples of such rights and privileges include, but are not

limited to, free or

[[Page 39901]]

discounted admission to the organization's facilities or events, free

or discounted parking, preferred access to goods or services, and

discounts on the purchase of goods or services; and

(2) Admission to events during the membership period that are open

only to members of the donee organization and for which the donee

organization reasonably projects that the cost per person (excluding

any allocable overhead) for each such event is within the limits

established for ``low cost articles'' under section 513(h)(2). The

projected cost to the donee organization is determined at the time the

organization first offers its membership package for the year (using

section 3.07 of Revenue Procedure 90-12, or any successor documents, to

determine the cost if items or services are donated).

(ii) Examples. The following examples illustrate the rules of this

paragraph (f)(8).

Example 1. Membership benefits disregarded. Performing Arts

Center E is an organization described in section 170(c). In return

for a payment of $75, E offers a package of basic membership

benefits that includes the right to purchase tickets to performances

one week before they go on sale to the general public, free parking

in E's garage during evening and weekend performances, and a 10%

discount on merchandise sold in E's gift shop. In return for a

payment of $150, E offers a package of preferred membership benefits

that includes all of the benefits in the $75 package as well as a

poster that is sold in E's gift shop for $20. The basic membership

and the preferred membership are each valid for twelve months, and

there are approximately 50 performances of various productions at E

during a twelve month period. E's gift shop is open for several

hours each week and at performance times. F, a patron of the arts,

is solicited by E to make a contribution. E offers F the preferred

membership benefits in return for a payment of $150 or more. F makes

a payment of $300 to E. F can satisfy the substantiation requirement

of section 170(f)(8) by obtaining a contemporaneous written

acknowledgment from E that includes a description of the poster and

a good faith estimate of its fair market value ($20) and disregards

the remaining membership benefits.

Example 2. Rights or privileges that cannot be exercised

frequently. Community Theater Group G is an organization described

in section 170(c). Every summer, G performs four different plays.

Each play is performed two times. In return for a membership fee of

$60, G offers its members free admission to any of its performances.

Non-members may purchase tickets on a performance by performance

basis for $15 a ticket. H, an individual who is a sponsor of the

theater, is solicited by G to make a contribution. G tells H that

the membership benefit will be provided in return for any payment of

$60 or more. H chooses to make a payment of $350 to G and receives

in return the membership benefit. G's membership benefit of free

admission is not described in paragraph (f)(8)(i)(B) of this section

because it is not a privilege that can be exercised frequently (due

to the limited number of performances offered by G). Therefore, to

meet the requirements of section 170(f)(8), a contemporaneous

written acknowledgment of H's $350 payment must include a

description of the free admission benefit and a good faith estimate

of its value.

(9) Goods or services provided to employees of donors--(i) Certain

goods or services disregarded. For purposes of section 170(f)(8), goods

or services provided by a donee organization to a taxpayer's employees

in return for a payment to the organization may be disregarded to the

extent that the goods or services provided to each employee are the

same as those described in paragraph (f)(8)(i) of this section.

(ii) No good faith estimate required for other goods or services.

If a taxpayer makes a contribution of $250 or more to a donee

organization and, in return, the donee organization offers the

taxpayer's employees goods or services other than those described in

paragraph (f)(9)(i) of this section, the contemporaneous written

acknowledgment of the taxpayer's contribution is not required to

include a good faith estimate of the value of such goods or services

but must include a description of those goods or services.

(iii) Example. The following example illustrates the rules of this

paragraph (f)(9).

Example. Museum J is an organization described in section

170(c). For a payment of $40, J offers a package of basic membership

benefits that includes free admission and a 10% discount on

merchandise sold in J's gift shop. J's other membership categories

are for supporters who contribute $100 or more. Corporation K makes

a payment of $50,000 to J and in return, J offers K's employees free

admission, a tee-shirt with J's logo that costs J $4.50, and a gift

shop discount of 25%. The free admission for K's employees is the

same as the benefit made available to holders of the $40 membership

and is otherwise described in paragraph (f)(8)(i)(B) of this

section. The tee-shirt given to each of K's employees is described

in paragraph (f)(8)(i)(A) of this section. Therefore, a

contemporaneous written acknowledgment of K's payment is not

required to include a description or good faith estimate of the

value of the free admission or the tee-shirts. However, because the

gift shop discount offered to K's employees is different than that

offered to those who purchase the $40 membership, the discount is

not described in paragraph (f)(8)(i) of this section. Therefore, the

contemporaneous written acknowledgment of K's payment is required to

include a description of the 25% discount offered to K's employees.

(10) Substantiation of out-of-pocket expenses. A taxpayer that

incurs unreimbursed expenditures incident to the rendition of services,

within the meaning of Sec. 1.170A-1(g), is treated as having obtained a

contemporaneous written acknowledgment of those expenditures if the

taxpayer--

(i) Has adequate records under paragraph (a) of this section to

substantiate the amount of the expenditures; and

(ii) Obtains by the date prescribed in paragraph (f)(3) of this

section a statement prepared by the donee organization containing--

(A) A description of the services provided by the taxpayer;

(B) The date the services were provided;

(C) A statement of whether or not the donee organization provides

any goods or services in consideration, in whole or in part, for the

unreimbursed expenditures; and

(D) The information required by paragraphs (f)(2)(iii) and (iv) of

this section.

(11) Contributions made by payroll deduction. [Reserved]

(12) Distributing organizations as donees. [Reserved]

(13) Transfers to certain trusts. Section 170(f)(8) does not apply

to a transfer of property to a trust described in section 170(f)(2)(B),

a charitable remainder annuity trust (as defined in section 664(d)(1)),

or a charitable remainder unitrust (as defined in section 664(d)(2)).

Section 170(f)(8) does apply, however, to a transfer to a pooled income

fund (as defined in section 642(c)(5)).

(14) Substantiation of charitable contributions made by a

partnership or an S corporation. If a partnership or an S corporation

makes a charitable contribution of $250 or more, the partnership or S

corporation will be treated as the taxpayer for purposes of section

170(f)(8). Therefore, the partnership or S corporation must

substantiate the contribution with a contemporaneous written

acknowledgment from the donee organization before reporting the

contribution on its income tax return for the year in which the

contribution was made and must maintain the contemporaneous written

acknowledgment in its records. A partner of a partnership or a

shareholder of an S corporation is not required to obtain any

additional substantiation for his or her share of the partnership's or

S corporation's charitable contribution.

(15) Substantiation of matched payments--(i) In general. For

purposes of section 170, if a taxpayer's payment to a donee

organization is matched, in whole or in part, by another payor, and

[[Page 39902]]

the taxpayer receives goods or services in consideration for its

payment and some or all of the matching payment, those goods or

services will be treated as provided in consideration for the

taxpayer's payment and not in consideration for the matching payment.

(ii) Example. The following example illustrates the rules of this

paragraph (f)(15).

Example. Taxpayer makes a $400 payment to Charity L, a donee

organization. Pursuant to a matching payment plan, Taxpayer's

employer matches Taxpayer's $400 payment with an additional payment

of $400. In consideration for the combined payments of $800, L gives

Taxpayer an item that it estimates has a fair market value of $100.

L does not give the employer any goods or services in consideration

for its contribution. The contemporaneous written acknowledgment

provided to the employer must include a statement that no goods or

services were provided in consideration for the employer's $400

payment. The contemporaneous written acknowledgment provided to

Taxpayer must include the amount of Taxpayer's payment, a

description of the item received by Taxpayer, and a statement that

L's good faith estimate of the value of the item received by

Taxpayer is $100.

(16) Effective date. This paragraph (f) applies to contributions

made on or after the date that these regulations are published in the

Federal Register as final regulations. However, taxpayers may rely on

the rules of this paragraph (f) for contributions made on or after

January 1, 1994.

Par. 4. Section 1.6115-1 is added under the undesignated

centerheading ``Miscellaneous Provisions'' to read as follows:

Sec. 1.6115-1 Disclosure requirements for quid pro quo contributions.

(a) Good faith estimate defined--(1) In general. A good faith

estimate of the value of goods or services provided by an organization

described in section 170(c) in consideration for a taxpayer's payment

to that organization is an estimate of the fair market value, within

the meaning of Sec. 1.170A-1(c)(2), of the goods or services. The

organization may use any reasonable methodology in making a good faith

estimate, provided it applies the methodology in good faith. If the

organization fails to apply the methodology in good faith, the

organization will be treated as not having met the requirements of

section 6115. See section 6714 for the penalties that apply for failure

to meet the requirements of section 6115.

(2) Good faith estimate for goods or services that are not

commercially available. A good faith estimate of the value of goods or

services that are not generally available in a commercial transaction

may be determined by reference to the fair market value of similar or

comparable goods or services. Goods or services may be similar or

comparable even though they do not have the unique qualities of the

goods or services that are being valued.

(3) Examples. The following examples illustrate the rules of this

paragraph (a).

Example 1. Facility not available on a commercial basis. Museum

M, an organization described in section 170(c), is located in

Community N. In return for a payment of $50,000 or more, M allows a

donor to hold a private event in a room located in M. No other

private events are permitted to be held in M. In Community N, there

are four hotels, O, P, Q, and R, that have ballrooms with the same

capacity as the room in M. Of these hotels, only O and P have

ballrooms that offer amenities and atmosphere that are similar to

the amenities and atmosphere of the room in M (although O and P lack

the unique collection of art that is displayed in the room of M).

Because the capacity, amenities, and atmosphere of ballrooms in O

and P are comparable to the capacity, amenities, and atmosphere of

the room in M, a good faith estimate of the benefits received from M

may be determined by reference to the cost of renting either the

ballroom in O or the ballroom in P. The cost of renting the ballroom

in O is $2500 and, therefore, a good faith estimate of the fair

market value of the right to host a private event in the room at M

is $2500. In this example, the ballrooms in O and P are considered

similar and comparable facilities to the room in M for valuation

purposes, notwithstanding the fact that the room in M displays a

unique collection of art.

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.

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.

(b) Certain goods or services disregarded. For purposes of section

6115, an organization described in section 170(c) may disregard goods

or services described in Sec. 1.170A-13(f)(8)(i).

(c) Goods or services provided to employees of donors--

(1) Certain goods or services disregarded. For purposes of section

6115, goods or services provided by an organization described in

section 170(c) to a taxpayer's employees in return for a payment to the

organization may be disregarded to the extent that the goods or

services provided to each employee are the same as those described in

Sec. 1.170A-13(f)(8)(i).

(2) Description permitted in lieu of good faith estimate for other

goods or services. If a taxpayer makes a quid pro quo contribution in

excess of $75 to an organization described in section 170(c) and, in

return, the organization offers the taxpayer's employees goods or

services other than those described in paragraph (c)(1) of this

section, the organization's written disclosure statement required by

section 6115 may include a description of the goods or services in lieu

of a good faith estimate of the value of the goods or services,

provided that the statement otherwise satisfies the requirements of

section 6115.

(d) Effective date. This section applies to contributions made on

or after the date that these regulations are published in the Federal

Register as final regulations. However, taxpayers may rely on the rules

of this section for contributions made on or after January 1, 1994.

Margaret Milner Richardson,

Commissioner of Internal Revenue.

[FR Doc. 95-19063 Filed 8-3-95; 8:45 am]

BILLING CODE 4830-01-U