Deductibility, Substantiation, and Disclosure of Certain Charitable Contributions

DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Parts 1 and 602

[TD 8690]

RIN-1545-AS94

Deductibility, Substantiation, and Disclosure of Certain

Charitable Contributions

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final regulations.

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SUMMARY: This document contains final 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 regulations will affect organizations described in

section 170(c) and individuals and entities that make payments to these

organizations.

EFFECTIVE DATE: These regulations are effective December 16, 1996.

FOR FURTHER INFORMATION CONTACT: Jefferson K. Fox of the Office of

Assistant Chief Counsel (Income Tax and Accounting) at 202-622-4930

(not a toll-free call).

SUPPLEMENTARY INFORMATION:

Paperwork Reduction Act

The collection of information contained in these final regulations

has been reviewed and approved by the Office of Management and Budget

in accordance with the requirements of the Paperwork Reduction Act (44

U.S.C. 3507) under control number 1545-1464. Responses to this

collection of information are required for charitable contribution

deductions under section 170.

An agency may not conduct or sponsor, and a person is not required

to respond to, a collection of information unless the collection of

information displays a valid control number.

The estimated annual burden per recordkeeper varies from three

minutes to one hour, depending on individual circumstances, with an

estimated average of six minutes.

Comments concerning the accuracy of this burden estimate and

suggestions for reducing this burden should be sent to the Internal

Revenue Service, Attn: IRS Reports Clearance Officer, PC:FP,

Washington, DC 20224, and to the Office of Management and Budget, Attn:

Desk Officer for the Department of the Treasury, Office of Information

and

[[Page 65947]]

Regulatory Affairs, Washington, DC 20503.

Books or records relating to this collection of information must be

retained as long as their contents may be material in the

administration of any internal revenue law. Generally, tax returns and

tax return information are confidential, as required by 26 U.S.C. 6103.

Background

This document contains amendments to the Income Tax Regulations (26

CFR part 1) that provide guidance relating to (1) the substantiation

rules for charitable contributions under section 170(f)(8) of the

Internal Revenue Code of 1986 (Code), and (2) the disclosure

requirements for quid pro quo contributions under section 6115.

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.

103-66, 107 Stat. 455, 1993-3 C.B. 43.

Temporary regulations (TD 8544) and a notice of proposed rulemaking

cross-referencing the temporary regulations were published in the

Federal Register for May 27, 1994 (59 FR 27458, 27515). Those

regulations primarily addressed substantiation of charitable

contributions made by payroll deduction and substantiation of payments

to a charitable organization in exchange for goods or services of

insubstantial value. The notice of proposed rulemaking indicated that

comments would be considered both on the issues addressed in the

temporary regulations, and on other issues arising under section

170(f)(8).

A notice of proposed rulemaking (IA-44-94) addressing

substantiation issues under section 170(f)(8) other than contributions

made by payroll deduction was published in the Federal Register for

August 4, 1995 (60 FR 39896). Included in these proposed regulations

were the provisions that had originally appeared in the temporary

regulations published on May 27, 1994, relating to the substantiation

of payments to charitable organizations in exchange for goods or

services of insubstantial value. In drafting these proposed

regulations, the IRS had the benefit of the comments received in

response to the notice of proposed rulemaking published in the Federal

Register for May 27, 1994. Many of the suggestions offered in the

comments were incorporated into the proposed regulations.

Final regulations (TD 8623) relating to the substantiation of

charitable contributions made by payroll deduction were published in

the Federal Register for October 12, 1995 (60 FR 53126). These final

regulations did not include the provisions relating to the

substantiation of payments to charitable organizations in exchange for

goods or services with insubstantial value that had appeared in the

temporary regulations published on May 27, 1994 and were also included

in the proposed regulations published on August 4, 1995. The temporary

regulations published in the Federal Register for May 27, 1994, were

removed. For the convenience of taxpayers, the final regulations

relating to the substantiation of charitable contributions made by

payroll deduction (Sec. 1.170A-13(f)(11) and (12)) that were published

in the Federal Register for May 27, 1994, have been reprinted with the

final regulations adopted by this Treasury Decision.

Comments were received in response to the notice of proposed

rulemaking published on August 4, 1995, and a public hearing was held

on November 1, 1995. After consideration of those comments, together

with the relevant comments received in response to the notice of

proposed rulemaking published on May 27, 1994, the proposed regulations

under sections 170(f)(8) and 6115 are adopted as revised by this

Treasury Decision.

Public Comments

Intent To Make a Charitable Contribution

Section 1.170A-1(h) of the final regulations incorporates the two-

part test adopted by the Supreme Court in United States v. American Bar

Endowment, 477 U.S. 105 (1986), for determining deductibility under

section 170(a) of a payment that is partly in consideration for goods

or services. A deduction is not allowed for a payment to charity in

consideration for goods or services except to the extent the amount of

the payment exceeds the fair market value of the goods or services. In

addition, a deduction is not allowed unless the taxpayer intends to

make a payment in excess of the fair market value of the goods or

services.

Section 1.170A-13(f)(6) provides that a charitable organization

provides goods or services ``in consideration for'' a taxpayer's

payment if, at the time of payment, the taxpayer receives or ``expects

to receive'' goods or services in exchange. One commenter stated that a

charitable organization has no way of knowing what a taxpayer expects

to receive, and that the regulation requires the charity to determine

its donors' states of mind. The commenter suggested that a payment be

treated as made in consideration for goods or services ``if the donee

organization expects to provide and does provide services of which the

donor has been informed.'' Another commenter questioned whether donor

appreciation events, such as banquets honoring contributors, are held

``in consideration for'' charitable contributions. The commenter also

asked whether invitations to occasional events not disclosed to

prospective donors until after they make their contributions are ``in

exchange for'' the contributions.

The regulations follow American Bar Endowment by incorporating a

standard that is based on the facts and circumstances of each

charitable contribution. When a donor's contribution is made in

response to an express promise of a benefit, the donor generally will

have an expectation of a quid pro quo. A donor may also have an

expectation of a quid pro quo when the donor makes a contribution with

knowledge that the charitable donee has conferred a benefit on other

donors making comparable contributions. For example, if a charity has a

history of sponsoring a dinner-dance for donors making substantial

contributions, a donor making a substantial contribution may have an

expectation of receiving an invitation to such an event. The

expectation of a quid pro quo may exist even though the donor is not

aware of the exact nature of the quid pro quo (e.g., a donation to a

charity that sponsors a donor appreciation event of a different type

every year). This standard for determining a donor's expectation of a

quid pro quo disallows deductions in situations where facts and

circumstances indicate that the donor expected, at the time of his or

her payment to charity, that there would be a quid pro quo, even though

there was no explicit promise of one.

A commenter requested guidance on the proper treatment of a payment

in consideration for a quid pro quo received in a year after the year

of payment. Under section 1.170A-13(f)(6), goods or services provided

by donee organizations in consideration for a donor's payment include

goods or services provided in a year other than the year of payment.

Accordingly, if a donor makes a payment to a charitable organization in

exchange for goods or services, the donor's deductible charitable

contribution for the year of payment is limited to the amount, if any,

by which the payment exceeds the value of those goods or services, even

if they are not available to the donor until a subsequent year.

[[Page 65948]]

Refusal of Benefits

Commenters asked for guidance on the proper manner of

substantiating a contribution by a donor who refuses benefits offered

by a charitable organization. One commenter suggested that the

regulations indicate that when a taxpayer receives a right to quid pro

quo benefits but does not use them, the taxpayer is not necessarily

allowed a charitable contribution deduction in the full amount of the

quid pro quo payment. Another suggested that a taxpayer wishing to

deduct the full amount of a quid pro quo payment could check a box on a

document to be sent to the charity at the time of contribution to show

refusal of the benefit.

These comments are consistent with IRS views. Rev. Rul. 67-246,

1967-2 C.B. 104, provides guidance relating to the refusal of benefits

offered by a charitable organization. The revenue ruling holds that a

taxpayer choosing not to use tickets that were made available to him is

not entitled to a greater contribution than would otherwise be allowed;

i.e., the deduction is limited to the amount paid in excess of the

value of the tickets received in exchange. 1967-2 C.B. 106. A deduction

in the full amount of a taxpayer's payment may be allowed, however, if

the taxpayer properly rejects the right to the tickets. Rev. Rul. 67-

246 contains two examples (Examples 3 and 7) illustrating ways that

donors can effectively reject benefits offered by charitable

organizations. Example 7 illustrates that a check-off box on a form

provided by the charity can be used to reject a ticket at the time of

contribution. A taxpayer who has properly rejected a benefit offered by

a charitable organization may claim a deduction in the full amount of

the payment to the charitable organization, and the contemporaneous

written acknowledgment need not reflect the value of the rejected

benefit.

Certain Goods or Services Disregarded

Goods or Services With Insubstantial Value

Under guidelines set forth in Rev. Proc. 90-12, 1990-1 C.B. 471,

and Rev. Proc. 92-49, 1992-1 C.B. 987, certain goods or services

received in exchange for a payment to a charity are treated as having

insubstantial value and can therefore be disregarded for the purpose of

determining the amount of a taxpayer's payment that is deductible as a

charitable contribution. Under these guidelines, if a taxpayer makes a

payment to a charitable organization in the context of a fundraising

campaign, and receives benefits with a fair market value of not more

than two percent of the amount of the payment (up to a maximum of $67,

for 1996), the benefits received are considered to have insubstantial

value for purposes of determining the amount of the taxpayer's

contribution. (The $67 benefit limitation is adjusted annually for

inflation.)

Further, if a taxpayer makes a payment of $33.50 or more to a

charity and receives only token items in return, the items are

considered to have insubstantial value if they (1) bear the charity's

name or logo, and (2) have an aggregate cost to the charity of $6.70 or

less. (The $33.50 and $6.70 amounts apply to payments made in 1996;

these amounts are adjusted annually for inflation.) In addition,

newsletters not of commercial quality and low-cost items provided for

free without an advance order are considered to have insubstantial

value.

Under section 1.170A-13(f)(8)(i)(A) of the regulations, the same

types of goods and services disregarded under the guidelines of Rev.

Procs. 90-12 and 92-49 can be disregarded for purposes of

substantiation under section 170(f)(8). One commenter asked whether the

contemporaneous written acknowledgment provided to a donor receiving

goods or services of insubstantial value should indicate that no goods

or services were received. When a donee organization provides a donor

only with goods or services having insubstantial value under Rev.

Procs. 90-12 and 92-49, the contemporaneous written acknowledgment may

indicate that no goods or services were provided in exchange for the

donor's payment. See Example 2, Sec. 1.170A-13(f)(8)(ii).

Another commenter stated that the rules in Rev. Procs. 90-12 and

92-49 for goods or services of insubstantial value are unduly

restrictive and prevent charitable organizations from recognizing

longstanding, generous contributors with suitable gifts of

appreciation. Another argued that the costs of token items received by

a taxpayer during the year from a charity should not be aggregated.

Sections 1.170A-13(f)(8)(B) and 1.170A-13(f)(9)(i) provide that certain

membership benefits provided in exchange for a payment of $75 or less

may be disregarded for purposes of determining whether any quids pro

quo were provided to the donor. For purposes of sections 170(f)(8) and

6115, these provisions supplement the categories of goods or services

treated as having insubstantial value under the guidelines of Rev.

Procs. 90-12 and 92-49. The IRS and Treasury believe that application

of the guidelines of Rev. Procs. 90-12 and 92-49, together with the

membership benefit provisions in the final regulations, strikes an

appropriate balance between administrative and compliance concerns

under sections 170(f)(8) and 6115. Accordingly, the guidelines of Rev.

Procs. 90-12 and 92-49 have not been modified.

Membership Benefits

The regulations provide limited relief with respect to certain

types of benefits customarily provided to donors in exchange for

membership payments. Two types of membership benefits offered in

exchange for a payment of $75 or less may be disregarded: (1) Free

admission to members-only events with a per-person cost to the charity

that is no higher than the standard for low- cost articles under

section 513(h)(2)(C) ($6.70 for 1996); and (2) rights or privileges

that can be exercised frequently during the membership period (other

than rights or privileges described in section 170(l), governing rights

to purchase tickets for college athletic events).

Some commenters said that the term frequently, when read in

conjunction with the examples, provided sufficient clarity and

appropriate flexibility. Other commenters expressed concern about use

of the term frequently, stating that it was vague and imprecise. For

smaller organizations, they argued, in determining whether a right of

free admission to a series of events can be frequently exercised,

consideration should be given to the number of events held by the

organization each year. The IRS and Treasury believe that a charity can

make a determination that a right or privilege is frequently

exercisable by reference to the examples that were in the proposed

regulations and are adopted in the final regulations.

A commenter suggested that the $75 payment amount in the special

rules for membership benefits should be indexed for inflation. The IRS

and Treasury believe that it is important for the membership payment

amount to be a number that can be easily remembered by charities and

donors. For this reason, annual inflation adjustments are not

advisable. However, the IRS and Treasury will consider increases to

this $75 figure in the future.

A commenter asked whether the rule that allows taxpayers to

disregard certain membership benefits applies to discounts offered by a

donee organization for purchases from retailers working with the

charity to provide discounts to members. These discounts

[[Page 65949]]

are to be treated like any other rights or privileges and, therefore,

may be disregarded for purposes of section 170(f)(8) if they can be

exercised frequently during the membership period.

Goods or Services Provided to a Donor's Employees

Prior to publication of the proposed regulations, several

commenters asked for guidance on the proper method of valuation of

goods or services provided by charitable organizations to employees of

donors. The final regulations follow the proposed regulations and

provide that goods or services provided to a donor's employees can be

disregarded if they consist of the types of benefits that could be

disregarded when provided directly to a donor (i.e., goods or services

with insubstantial value and certain annual membership benefits). For

any other types of goods or services provided to employees of a donor

making a contribution of $250 or more, the contemporaneous written

acknowledgment must describe the goods or services, but need not

include the donee organization's good faith estimate of their fair

market value.

A commenter stated that the special rule for goods or services

provided to employees of a donor should also be available for partners

in a partnership. In the final regulations, the exception for goods or

services provided to a donor's employees has been modified to include

partners in a donor-partnership.

A commenter was concerned about charities that receive funds from a

private foundation established by a business entity. The commenter

suggested that such charities should be permitted to provide benefits

to employees of the business entity without any tax consequences.

Because this suggestion raises issues beyond the scope of this

regulation (including issues relating to the self-dealing rules under

section 4941), this suggestion was not adopted.

A commenter stated that when employees receive benefits as a result

of an employer's charitable contribution, it would be easier for the

charity (rather than the employer) to estimate the fair market value of

the benefits. Another commenter stated that when employees receive

benefits that cannot be disregarded under section 170, the employer/

donor is likely to deduct the value of those benefits as a business

expense under section 162. Because employers may claim the full amount

of their payments to charity--including the value of the benefits--as a

deduction, the commenter suggested that employers should be relieved of

the burden of valuing such benefits, and that the full amount of such

payments should be deductible under section 170.

The IRS and Treasury recognize that in cases where employee

benefits cannot be disregarded for purposes of section 170, employers

may nevertheless seek to deduct their costs pursuant to section 162.

For deductions under section 170, however, United States v. American

Bar Endowment, supra, limits the allowable deduction to the amount of

the employer's payment in excess of the value of employee benefits.

Accordingly, if the employee benefits cannot be disregarded, their

value must be subtracted from the amount of the employer's payment to

determine the correct amount of the charitable contribution deduction.

Although valuation may be difficult, the IRS and Treasury continue to

believe that the employer is in a better position than the charity to

be responsible for valuation of benefits provided to employees.

Payments for the Right To Purchase Tickets to College Athletic Events

A commenter asked for clarification regarding the applicability of

the substantiation requirements to payments for the right to purchase

tickets to college athletic events. Section 170(l) provides that

payments to colleges or universities for the right to purchase tickets

to athletic events are partially (eighty percent) deductible as

charitable contributions. The final regulations have been modified to

clarify how sections 170(f)(8) and 6115 apply to payments described in

section 170(l).

For purposes of section 170(f)(8), twenty percent of the amount

paid for the right to purchase tickets for seating at college or

university athletic events is treated as the fair market value of such

right. When the total payment for the right to purchase tickets to

college athletic events is $312.50 or more, the portion of the payment

treated as a charitable contribution will be $250 or more, and

substantiation will be required under section 170(f)(8). For purposes

of section 6115, twenty percent of the amount paid for the right to

purchase tickets for seating at college or university athletic events

is treated as a good faith estimate of the fair market value of this

right.

Rules Applicable to Corporations

Several commenters suggested that subchapter C corporations (C

corporations) should be relieved of the substantiation requirements.

Some indicated that C corporations should be exempt; others argued for

a de minimis exception for C corporations making substantial

contributions. Under a de minimis exception, deductions for all of a C

corporation's charitable contributions would be allowed if the

corporation had contemporaneous written acknowledgments substantiating

most, or substantially all, of its contributions. These commenters

stated that the substantiation requirements were enacted to deter

individuals--not businesses--that had claimed charitable contribution

deductions for the full amounts of their payments to charitable

organizations, even though they had received quids pro quo in exchange.

They suggested that the IRS exercise the authority provided in section

170(f)(8)(E) and make the substantiation requirements inapplicable to C

corporations. The final regulations do not adopt these suggestions. The

IRS and Treasury believe that exempting C corporations from the

substantiation requirements could, in fact, encourage abuses and would

therefore conflict with the purpose of section 170(f)(8).

Meaning of Contemporaneous

A commenter asked whether a taxpayer may file an amended income tax

return to claim a charitable contribution deduction if the taxpayer

obtained the contemporaneous written acknowledgment for the

contribution after timely filing the original return. Section

170(f)(8)(C) provides that a written acknowledgment is contemporaneous

if obtained on or before the earlier of (1) the date that the taxpayer

files the return for the year in which the contribution was made, or

(2) the due date (including extensions) for filing the return for that

taxable year. A written acknowledgment obtained after a taxpayer files

the original return for the year of the contribution is not

contemporaneous within the meaning of the statute.

Substantiation of Multiple Contributions

Several commenters asked whether the substantiation requirements

apply to multiple contributions totaling $250 or more made to a single

charity during a single year, when each contribution is less than $250.

The conference report accompanying the Omnibus Budget Reconciliation

Act of 1993 indicates that separate payments will be treated as

separate contributions and will not be aggregated for purposes of

applying the $250 threshold. H.R. Conf. Rep. No. 213, 103d Cong., 1st

Sess. 565, n. 29 (1993). If there is no separate payment of $250 or

more, substantiation under section 170(f)(8) is not required, even if

the sum of the separate payments is $250 or

[[Page 65950]]

more. Section 1.170A-13(f)(1) has been modified to clarify this. A

commenter asked whether there must be a separate contemporaneous

written acknowledgment for each contribution of $250 or more. Section

1.170A-13(f)(1) has been modified to clarify that for multiple

contributions of $250 or more to one charity, one acknowledgment that

reflects the total amount of the taxpayer's contributions to the

charity for the year is sufficient.

Form of Substantiation

Commenters asked whether a contemporaneous written acknowledgment

must be in any particular format. As long as it is in writing and

contains the information required by law, a contemporaneous written

acknowledgment may be in any format. One commenter suggested that the

regulations should allow charities to report charitable contributions

directly to the IRS on Form 990 or 990-PF. Section 170(f)(8) authorizes

the Secretary to prescribe regulations allowing donee organizations to

satisfy the requirements of section 170(f)(8) by filing a return that

includes the information described in section 170(f)(8)(B). The IRS and

Treasury have decided not to implement this suggestion at this time.

However, in an effort to reduce paperwork and taxpayer burdens, the IRS

will examine whether any existing IRS forms can be modified to assist

in their use in substantiating charitable contributions.

A commenter asked for guidance on the proper method of

substantiating payments by corporations that agree to match employee

contributions to charity. When an employee makes a charitable

contribution that is eligible for a corporate matching payment, some

charities routinely send the participating corporation a letter,

notifying the corporation of the employee's gift and thanking it in

advance for the matching payment the charity expects to receive.

Commenters suggested that this letter be treated as meeting the

corporation's requirements under section 170(f)(8). This suggestion has

not been adopted, because letters sent in advance of a contribution do

not substantiate the contribution. The acknowledgment under section

170(f)(8) must include information about what has been ``contributed.''

The acknowledgment cannot be completed until after the charitable

contribution has been made. (See section 1.170A-1(b), which states that

ordinarily a contribution is made at the time delivery is effected.)

Out-of-Pocket Expenses

The proposed regulations allowed volunteers who incurred

unreimbursed out-of-pocket expenses while performing services for a

charity to substantiate their contributions with a statement that

described the services and the date they were performed. The

acknowledgment was not required to list the amount of the unreimbursed

expense. Several commenters suggested an exemption from the

substantiation requirements for unreimbursed out-of-pocket expenses

incurred incident to the rendition of services to a donee organization.

Exemption is appropriate, they argued, because the requirements are

burdensome, particularly since a donee organization is often unaware of

the amount and nature of expenses incurred by volunteers performing

services on behalf of the charity, or the exact dates on which the

volunteer services were performed. The final regulations eliminate the

requirement that the contemporaneous written acknowledgment include the

date on which services were performed for the charity. However, to

carry out the purposes of the statute, volunteers claiming a charitable

contribution deduction for an unreimbursed expense of $250 or more are

still required to obtain substantiation confirming the type of services

they performed for the charity.

Good Faith Estimate

Section 170(f)(8) requires a written acknowledgment furnished by a

charity to a donor to include a good faith estimate of the value of any

goods or services provided to the donor. Section 6115(a)(2) similarly

requires a written disclosure statement provided to a donor making a

quid pro quo contribution of more than $75 to include a good faith

estimate of the value of goods or services provided to the donor. The

regulations define a good faith estimate as an estimate of the fair

market value of the goods or services. A taxpayer can generally rely on

the good faith estimate provided by a charity.

A commenter stated that the regulations should contain an example

illustrating how charities can compute the fair market value of goods

or services. We have not adopted this suggestion. There is no single

correct way to determine fair market value; a charitable organization

may use any reasonable methodology (e.g., comparison with comparable

retail prices, markup from wholesale cost) to determine the fair market

value. Examples 1 and 2 of section 1.6115-1(a)(3) illustrate this rule.

A commenter recommended that the regulations state that a donor

does not have to use the good faith estimate provided by a charitable

organization if the donor believes another estimate is more accurate.

The regulations do not mandate that a donor use the estimate provided

by a donee organization in calculating the deductible amount. Indeed,

when a taxpayer knows or has reason to know that an estimate is

inaccurate, the taxpayer may not treat the donee organization's

estimate as the fair market value.

A commenter suggested that the regulations indicate that

recognition items, such as plaques or trophies with an honoree's name

inscribed, should be considered to have little, if any, fair market

value. This suggestion has not been adopted. Inscribed plaques and

trophies may have some value, even though the value may be less than

cost. In addition, see Sec. 1.170A-13(f)(8)(i)(A) regarding goods or

services with insubstantial value.

Another commenter asked whether the listing of a donor's name in a

program at a charity-sponsored event has a substantial value. An

acknowledgment in such a program, which identifies--rather than

promotes--a donor, is an inconsequential benefit with no significant

value. See Rev. Rul. 68-432, 1968-2 C.B. 104, 105, holding that

``[s]uch privileges as being associated with or being known as a

benefactor of the [charitable] organization are not significant return

benefits that have monetary value.''

Contributions to a Split-Interest Trust

Section 1.170A-13(f)(13) of the proposed regulations provides that

section 170(f)(8) does not apply to a transfer of property to a

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

commenter observed that there are two other types of unitrusts in

addition to the type described in section 664(d)(2), and that these

unitrusts should be treated similarly. The final regulations have been

modified to provide that the substantiation requirements of section

170(f)(8) do not apply to transfers to unitrusts described in section

664(d)(3) or section 1.664-3(a)(1)(i)(b), as well as to unitrusts

described in section 664(d)(2).

Section 1.170A-13(f)(13) of the proposed regulations provides that

section 170(f)(8) applies to a transfer to a pooled income fund.

Commenters requested further guidance on the proper way to substantiate

contributions to pooled income funds. The final regulations have been

modified to

[[Page 65951]]

require, in the case of a transfer of cash or other property to a

pooled income fund, that the written acknowledgment of the charitable

organization maintaining the fund include a statement that the cash or

other property was transferred to the organization's pooled income fund

and state whether any goods or services, in addition to the income

interest in the fund, were provided to the transferor. The

contemporaneous written acknowledgment need not include an estimate of

the value of the income interest in the pooled income fund. The final

regulations also provide guidance on the proper method of

substantiating a deduction claimed by a taxpayer who has purchased an

annuity from a charitable organization.

Special Analyses

It has been determined that this Treasury decision is not a

significant regulatory action as defined in Executive Order 12866.

Therefore, a costbenefit analysis is not required. It also has been

determined that section 553(b) of the Administrative Procedure Act (5

U.S.C. chapter 5) does not apply to these regulations, and because the

notice of proposed rulemaking preceding the regulations was issued

prior to March 29, 1996, the Regulatory Flexibility Act (5 U.S.C.

chapter 6) does not apply. See 5 U.S.C. section 601, Pub. L. 104-121

section 245. Pursuant to section 7805(f) of the Internal Revenue Code,

the notice of proposed rulemaking preceding these regulations was

submitted to the Chief Counsel for Advocacy of the Small Business

Administration for comment on the impact of the proposed regulations on

small businesses.

Drafting Information

The principal author of these regulations is Jefferson K. Fox,

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

26 CFR Part 1

Income taxes, Reporting and recordkeeping requirements.

26 CFR Part 602

Reporting and recordkeeping requirements.

Adoption of Amendments to the Regulations

Accordingly, 26 CFR parts 1 and 602 are amended as follows:

PART 1--INCOME TAXES

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

a new entry in numerical order 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 (as defined in Sec. 1.170A-13(f)(6)) 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 a 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 a taxpayer is a dealer in the type of goods or services provided in

consideration for the taxpayer's 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 attending the event.

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

[[Page 65952]]

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 December 16, 1996. 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 by revising paragraph (f) to

read as follows:

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

for charitable contributions.

* * * * *

(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 the donee organization. A taxpayer who makes more

than one contribution of $250 or more to a donee organization in a

taxable year may substantiate the contributions with one or more

contemporaneous written acknowledgments. 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. Separate

contributions of less than $250 are not subject to the requirements of

section 170(f)(8), regardless of whether the sum of the contributions

made by a taxpayer to a donee organization during a taxable year equals

$250 or more.

(2) Written acknowledgment. Except as otherwise provided in

paragraphs (f)(8) through (f)(11) and (f)(13) 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 the 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 a 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 in exchange

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 may include, but are not

limited to, free or 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 a donee organization and for which the donee

organization reasonably projects that the cost per person (excluding

any allocable overhead) attending 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 of any items or services that 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

[[Page 65953]]

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. Contemporaneous written acknowledgment need not

mention rights or privileges that can be disregarded. The facts are

the same as in Example 1, except that F made a payment of $300 and

received only a basic membership. F can satisfy the section

170(f)(8) substantiation requirement with a contemporaneous written

acknowledgment stating that no goods or services were provided.

Example 3. 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.

Example 4. Multiple memberships. In December of each year, K, an

individual, gives each of her six grandchildren a junior membership

in Dinosaur Museum, an organization described in section 170(c).

Each junior membership costs $50, and K makes a single payment of

$300 for all six memberships. A junior member is entitled to free

admission to the museum and to weekly films, slide shows, and

lectures about dinosaurs. In addition, each junior member receives a

bi-monthly, non-commercial quality newsletter with information about

dinosaurs and upcoming events. K's contemporaneous written

acknowledgment from Dinosaur Museum may state that no goods or

services were provided in exchange for K's payment.

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

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

170(f)(8), goods or services provided by a donee organization to

employees of a donor, or to partners of a partnership that is a donor,

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

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

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 or partners 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 for one year, a tee-shirt with J's logo that costs J

$4.50, and a gift shop discount of 25% for one year. 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, the 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 who

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) 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

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

this section.

(11) Contributions made by payroll deduction--(i) Form of

substantiation. A contribution made by means of withholding from a

taxpayer's wages and payment by the taxpayer's employer to a donee

organization may be substantiated, for purposes of section 170(f)(8),

by both--

(A) A pay stub, Form W-2, or other document furnished by the

employer that sets forth the amount withheld by the employer for the

purpose of payment to a donee organization; and

(B) A pledge card or other document prepared by or at the direction

of the donee organization that includes 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.

(ii) Application of $250 threshold. For the purpose of applying the

$250 threshold provided in section 170(f)(8)(A) to contributions made

by the means described in paragraph (f)(11)(i) of this section, the

amount withheld from each payment of wages to a taxpayer is treated as

a separate contribution.

(12) Distributing organizations as donees. An organization

described in section 170(c), or an organization described in 5 CFR

950.105 (a Principal Combined Fund Organization for purposes of the

Combined Federal Campaign) and acting in that capacity, that receives a

payment made as a contribution is treated as a donee organization

solely for purposes of section 170(f)(8), even if the organization

(pursuant to the donor's instructions or otherwise) distributes the

amount received to one or more organizations described in section

170(c). This paragraph (f)(12) does not apply, however, to a case in

which the

[[Page 65954]]

distributee organization provides goods or services as part of a

transaction structured with a view to avoid taking the goods or

services into account in determining the amount of the deduction to

which the donor is entitled under section 170.

(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) or

(d)(3) or Sec. 1.664(3)(a)(1)(i)(b)). Section 170(f)(8) does apply,

however, to a transfer to a pooled income fund (as defined in section

642(c)(5)); for such a transfer, the contemporaneous written

acknowledgment must state that the contribution was transferred to the

donee organization's pooled income fund and indicate whether any goods

or services (in addition to an income interest in the fund) were

provided in exchange for the transfer. The contemporaneous written

acknowledgment is not required to include a good faith estimate of the

income interest.

(14) Substantiation of payments to a college or university for the

right to purchase tickets to athletic events. For purposes of paragraph

(f)(2)(iii) of this section, the right to purchase tickets for seating

at an athletic event in exchange for a payment described in section

170(l) is treated as having a value equal to twenty percent of such

payment. For example, when a taxpayer makes a payment of $312.50 for

the right to purchase tickets for seating at an athletic event, the

right to purchase tickets is treated as having a value of $62.50. The

remaining $250 is treated as a charitable contribution, which the

taxpayer must substantiate in accordance with the requirements of this

section.

(15) 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.

(16) Purchase of an annuity. If a taxpayer purchases an annuity

from a charitable organization and claims a charitable contribution

deduction of $250 or more for the excess of the amount paid over the

value of the annuity, the contemporaneous written acknowledgment must

state whether any goods or services in addition to the annuity were

provided to the taxpayer. The contemporaneous written acknowledgment is

not required to include a good faith estimate of the value of the

annuity. See Sec. 1.170A-1(d)(2) for guidance in determining the value

of the annuity.

(17) 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 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)(17).

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 a statement of 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.

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

made on or after December 16, 1996. 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. Private events

other than those held by such donors are not 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 in 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

[[Page 65955]]

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) Value of the right to purchase tickets to college or university

athletic events. For purposes of section 6115, the right to purchase

tickets for seating at an athletic event in exchange for a payment

described in section 170(l) is treated as having a value equal to

twenty percent of such payment.

(d) Goods or services provided to employees or partners 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 employees of a donor or to partners of a partnership

that is a donor in return for a payment to the donee organization may

be disregarded to the extent that the goods or services provided to

each employee or partner 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. The written disclosure statement required by section

6115 may include a description of goods or services, in lieu of a good

faith estimate of their value, if the donor is--

(i) An employer and, in return for the donor's quid pro quo

contribution, an organization described in section 170(c) provides the

donor's employees with goods or services other than those described in

paragraph (d)(1) of this section; or

(ii) A partnership and, in return for its quid pro quo

contribution, the organization provides partners in the partnership

with goods or services other than those described in paragraph (d)(1)

of this section.

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

or after December 16, 1996. However, taxpayers may rely on the rules of

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

PART 602--OMB CONTROL NUMBERS UNDER THE PAPERWORK REDUCTION ACT

Par. 5. The authority citation for part 602 continues to read as

follows:

Authority: 26 U.S.C. 7805.

Par. 6. Section 602.101(c) is amended by adding the following

entries in numerical order to the table:

Sec. 602.101 OMB Control numbers.

* * * * *

(c) * * *

------------------------------------------------------------------------

Current OMB

CFR part or section where identified and described control No.

------------------------------------------------------------------------

* * * * *

Section 1.170A-13(f)....................................... 1545-1464

* * * * *

Section 1.6115-1........................................... 1545-1464

* * * * *

------------------------------------------------------------------------

Margaret Milner Richardson,

Commissioner of Internal Revenue.

Approved: November 27, 1996.

Donald C. Lubick,

Acting Assistant Secretary of the Treasury.

[FR Doc. 96-31719 Filed 12-13-96; 8:45 am]

BILLING CODE 4830-01-U