Thanks for the clarification, Eric!
Looking over the brief description of the benefits in the original description, one would want to look carefully at whether “discounts on events” would qualify as benefits that could be “frequently exercised” under the membership benefits exception.
The IRS makes a distinction between benefits that can be exercised frequently, such as free admission at a museum where you could go every day, and benefits that can only be exercised a limited number of times. For example, Topic G, “Updates on Disclosure and Substantiation Requirements,” from the IRS’s 1997 Exempt Organizations CPE Text, makes this distinction. Essentially, if the benefit can only be exercised a limited number of times, the benefit doesn’t qualify under the membership benefits exception. Benefits that could be exercised only a limited number of times might be discounted tickets for theatre productions that have a limited number of performances, or discounted admission to home athletics events of a team that only plays a limited number of home games. Discounts of this sort would not qualify as benefits that could be “frequently exercised” under this distinction.
If it is determined that the event discounts don’t qualify as benefits that can be “frequently exercised” you would then need to add up the discounts for all the events for which the members might receive a discount (for themselves, and for guests, if the membership also entities them to a discount for a guest or guest). And, in that case, the restructuring proposal would be less advantageous. (Or, if the discounts said that members at the relevant level could get discounts for, say, 2 tickets to each of 3 events, or whatever, you would value the benefits accordingly—presumably using the highest-valued discounts, if they differ. That would depend on how the program is structured.)
If the event discounts don’t qualify as benefits that could be “frequently exercised,” then they would be treated the same whether the membership level is $75 or $125, so the possible advantage of having a $75 level would have to be based on other benefits.
My US$0.02 worth; the usual disclaimers apply.
Good luck!
Alan
Alan S. Hejnal
Data Quality Manager
Smithsonian Institution - Office of Advancement
600 Maryland Avenue SW, Suite 600E
P.O. Box 37012, MRC 527
Washington, DC 20013-7012
•: 202-633-8754 | •:
HejnalA@si.edu<mailto:
HejnalA@si.edu>
[SNAGHTML5cbfa34]<https://www.si.edu/> [AASP_FundSvcs_LOGO-01(040pct)(mark)]
From: Advancement Services Discussion List <
FUNDSVCS@LISTSERV.FUNDSVCS.ORG> On Behalf Of Eric Valdescaro
Sent: Tuesday, July 30, 2019 3:30 PM
To:
FUNDSVCS@LISTSERV.FUNDSVCS.ORG
Subject: Re: [FUNDSVCS] Benefits for memberships
To clarify, my suggestion was meant with the intention to modify their benefits to those to be frequently exercised – at least for the vast majority of supporters. Then incremental benefits for membership levels above $75 should be established such that they are more easily identified and have straightforward FMVs. But little of this matters unless they first consider reducing their supporter membership cost to $75.
-Eric
From: Advancement Services Discussion List [mailto:
FUNDSVCS@LISTSERV.FUNDSVCS.ORG] On Behalf Of Hejnal, Alan
Sent: Tuesday, July 30, 2019 2:39 AM
To:
FUNDSVCS@LISTSERV.FUNDSVCS.ORG<mailto:
FUNDSVCS@LISTSERV.FUNDSVCS.ORG>
Subject: Re: [FUNDSVCS] Benefits for memberships
On the point of benefits provided in return for cumulative giving, conceptually, you look at each gift as it is made. Suppose benefits are provided when cumulative giving reaches $125, as in your description. The donor, say, gives $50. No benefits are provided to the donor, so you would issue a receipt with the “no goods or services language.” The same for a second $50 gift. But if the donor makes a third $50 gift, they now qualify for the benefits, and the full value of the benefits would have to be disclosed.
The complication—especially in circumstances where the value of the benefits is substantial, as seems likely in your example—the value of the benefits might exceed the value of the incremental gift that qualified the donor for the benefits.
I’ve worked with cumulative giving programs, but not ones where the benefits were so significant that they were likely to exceed the value of the incremental gift that qualified the donor for the benefits. If I had to deal with that situation, I might explore with counsel to include language on the gifts that might contribute toward qualifying the donor for the benefits language like “No goods or services were provided in consideration of this gift. However, if cumulative giving reaches $125 during the fiscal year, the donor will receive benefits valued at $100.” That would tie together the receipts, so that the donor couldn’t just use the first two receipts in the example above and claim an inappropriately large deduction.
This calls to mind another important characteristic of the cumulative-benefits programs that I’ve worked with in the past. Only gifts to certain designations qualified toward the membership (in one case, gifts to athletics). If the program were structured so that any gifts qualified toward the membership, such a disclaimer would presumably be required on every gift until the donor qualified for the benefits.
I agree with John that it might better not to consider membership contributions to be charitable contributions at all, and that it might not matter to donors given the current high threshold on being able to benefit from itemizing deductions. I think that would be worth considering if, in fact, you are soliciting contributions for this membership program, and/or if only certain contributions designated for the membership program count toward the membership program. It wasn’t clear to me from your description whether all contributions might count toward qualifying for the benefits, however, which would complicate things, possibly making all gifts be considered non-deductible until the $125 threshold was reached?
Eric’s thought about repositioning the qualifying level at $75 might be worth considering, but, since at least some of the benefits are not the sort of benefits that can be frequently-exercised, it might not be a great fit for your program.. Eric’s point about low-cost logo items is also worth considering, but it only applies when the low-cost articles are the only benefits being provided, which doesn’t seem to be the case. If you made the membership level $75 and all the benefits were either the privileges that could be frequently exercised or fit under the low-cost articles threshold? Maybe, but I’m not sure that would apply to all the benefits that you list.
Based on the admittedly-limited information that we have, it seems like there are many complications with such a program, unless you only count gifts made specifically toward the program and consider them non-deductible because of the benefits.
(It is probably also worth mentioning that, if gifts to the program are considered no-deductible, or all gifts up to $125 are considered non-deductible because of the benefits provide, you could not count alumni as donors based on such gifts, which might well affect alumni participation as measured by CASE’s Voluntary Support of Education Survey and the U.S. News rankings.)
My US$0.02 worth; the usual disclaimers apply.
Good luck!
Alan
Alan S. Hejnal
Data Quality Manager
Smithsonian Institution - Office of Advancement
600 Maryland Avenue SW, Suite 600E
P.O. Box 37012, MRC 527
Washington, DC 20013-7012
•: 202-633-8754 | •:
HejnalA@si.edu<mailto:
HejnalA@si.edu>
[SNAGHTML5cbfa34]<https://nam02.safelinks.protection.outlook.com/?url=https%3A%2F%2Fwww.si.edu%2F&data=02%7C01%7CHejnalA%40SI.EDU%7Cbd4325a59b6146b6d53608d7152450e1%7C989b5e2a14e44efe93b78cdd5fc5d11c%7C0%7C0%7C637001118041337069&sdata=rT97j0M%2BwVpsYPr2KYgWVzNKSyhR4%2FDGyCGshqK4Dvw%3D&reserved=0> [AASP_FundSvcs_LOGO-01(040pct)(mark)]
From: Advancement Services Discussion List <
FUNDSVCS@LISTSERV.FUNDSVCS.ORG<mailto:
FUNDSVCS@LISTSERV.FUNDSVCS.ORG>> On Behalf Of John Taylor
Sent: Tuesday, July 30, 2019 4:21 AM
To:
FUNDSVCS@LISTSERV.FUNDSVCS.ORG<mailto:
FUNDSVCS@LISTSERV.FUNDSVCS.ORG>
Subject: Re: [FUNDSVCS] Benefits for memberships
Eric's understanding of the law is similar to mine.
For membership levels at $75 or below there is a wide range of benefits that can be granted. Those are stated in IRS Publication 526. For membership levels above that amount, all of the additional benefits awarded must be valued for QPQ purposes. The discounted attendance will be a tough one as you must assume the member will have the ability to attend all of those events. The "free" stuff must be determined based on the FMV of those items. And the exclusive opportunities will need to be calculated based on each activity and what tangible benefit they receive.
Of course, you can just forget trying to calculate any deduction. As only 8% of taxpayers last year itemized their tax returns I doubt that many of these people are really going to need a tax receipt. I bet you could offer these memberships by marketing "all proceeds will benefit . . ." and you will still get as many members as you would a promise of a $5 (or whatever) tax deduction.
John
John H. Taylor
Principal, John H. Taylor Consulting
2604 Sevier St.
Durham, NC 27705
johntaylorconsulting@gmail.com<mailto:
johntaylorconsulting@gmail.com>
919.816.5903 (cell/text)
Serving the Advancement Community Since 1987
On Mon, Jul 29, 2019 at 9:10 PM Eric Valdescaro <
Eric.Valdescaro@uhfoundation.org<mailto:
Eric.Valdescaro@uhfoundation.org>> wrote:
Hi Jason,
Great question and I’ve had to deal with this. It’s not easy to answer and the IRS website doesn’t help much in my opinion. Essentially, Insubstantial Benefits (those for which the full charitable donation may remain eligible for a tax deduction) may include frequently exercised membership rights and privileges offered to members in consideration of $75 or less per year which may include things such as free/discounted admission or parking or 10% discount from a gift shop etc.
Since your support level starts at $125 it sounds like the only benefits that would not reduce the full $125 from being charitable are any benefits not included at the free level and for which the cumulative FMV does not exceed 2% of $125 (unless they are name/logo items for which the annual cumulative exemption may reach $11.10 for 2019). It may be easier and wiser to have your support level start at $75 instead of $125.
Welcoming additional information other listsers may have on this.
-Eric
Eric F. Valdescaro
Associate Vice President, Advancement Services
Office | 808-376-7830
University of Hawai‘i Foundation<https://nam02.safelinks.protection.outlook.com/?url=http%3A%2F%2Fwww.uhfoundation.org&data=02%7C01%7CHejnalA%40SI.EDU%7Cbd4325a59b6146b6d53608d7152450e1%7C989b5e2a14e44efe93b78cdd5fc5d11c%7C0%7C0%7C637001118041347065&sdata=0nc%2BENlkInXLG%2F6SyFwujq8KfK2FuIMfUbpCmL3uwbs%3D&reserved=0>
1314 South King Street, Suite B
Honolulu, HI 96814 <https://nam02.safelinks.protection.outlook.com/?url=https%3A%2F%2Fgoo.gl%2Fmaps%2Fn8uM1mFV5WS2&data=02%7C01%7CHejnalA%40SI.EDU%7Cbd4325a59b6146b6d53608d7152450e1%7C989b5e2a14e44efe93b78cdd5fc5d11c%7C0%7C0%7C637001118041347065&sdata=sY8zo9CY14sQTO9UGZ%2BJhgzLG6%2BS9EIkp%2FzO4FjorKc%3D&reserved=0>
Facebook<https://nam02.safelinks.protection.outlook.com/?url=http%3A%2F%2Fwww.facebook.com%2FUniversityHawaiiFoundation&data=02%7C01%7CHejnalA%40SI.EDU%7Cbd4325a59b6146b6d53608d7152450e1%7C989b5e2a14e44efe93b78cdd5fc5d11c%7C0%7C0%7C637001118041357056&sdata=K%2BImTXv9195QTzk3NDvKngsat0OCx5SM6KGLpTAlK6c%3D&reserved=0> • Twitter<https://nam02.safelinks.protection.outlook.com/?url=http%3A%2F%2Ftwitter.com%2FUHawaiiFdn&data=02%7C01%7CHejnalA%40SI.EDU%7Cbd4325a59b6146b6d53608d7152450e1%7C989b5e2a14e44efe93b78cdd5fc5d11c%7C0%7C0%7C637001118041357056&sdata=W3WbWHzL8ePhhtxzW%2FlwONEAnqf%2F%2FfPOjE9w7bVfOQo%3D&reserved=0> • LinkedIn<https://nam02.safelinks.protection.outlook.com/?url=https%3A%2F%2Fwww.linkedin.com%2Fcompany%2Funiversity-of-hawaii-foundation&data=02%7C01%7CHejnalA%40SI.EDU%7Cbd4325a59b6146b6d53608d7152450e1%7C989b5e2a14e44efe93b78cdd5fc5d11c%7C0%7C0%7C637001118041367049&sdata=536zHgm3%2FgKsxuMb8YQGYHi5hsZ0fO9pg472bCkBb7U%3D&reserved=0>
[University of Hawaii Foundation]<https://nam02.safelinks.protection.outlook.com/?url=http%3A%2F%2Fwww.uhfoundation.org%2F&data=02%7C01%7CHejnalA%40SI.EDU%7Cbd4325a59b6146b6d53608d7152450e1%7C989b5e2a14e44efe93b78cdd5fc5d11c%7C0%7C0%7C637001118041367049&sdata=rUsbm7FLpvBU5PME%2F35lzva%2BFQMtoSuds4uMAhFh4Zc%3D&reserved=0>
FOR OUR UNIVERSITY, OUR HAWAI‘I, OUR FUTURE
From: Advancement Services Discussion List [mailto:
FUNDSVCS@LISTSERV.FUNDSVCS.ORG<mailto:
FUNDSVCS@LISTSERV.FUNDSVCS.ORG>] On Behalf Of Jason Burdette
Sent: Monday, July 29, 2019 10:33 AM
To:
FUNDSVCS@LISTSERV.FUNDSVCS.ORG<mailto:
FUNDSVCS@LISTSERV.FUNDSVCS.ORG>
Subject: [FUNDSVCS] Benefits for memberships
Good afternoon,
One of our units has begun a new contribution-based membership program. There is a “free” level that will give a member certain perks, but supporters beginning at $125 in cumulative annual gifts to the unit will earn additional perks including discounted attendance to events, free items, and exclusive opportunities with unit staff. Valuing the benefits will not be an easy task, but determining the gift that qualifies the donor for a certain level will be even harder.
Does anyone have experience or wisdom with properly receipting gifts that result in cumulative annual giving benefits?
I found several other membership conversations on the listserv, but I didn’t see any with this specific question. Please excuse me if this is a repeat.
Many thanks,
Jason
Jason R. Burdette
Gift Accounting
UGA Foundation | 394 S Milledge Ave | Athens, GA 30602
706-542-8160<tel:7065428160> |
burdette@uga.edu<mailto:
burdette@uga.edu> | dar.uga.edu<https://nam02.safelinks.protection.outlook.com/?url=http%3A%2F%2Fdar.uga.edu%2F&data=02%7C01%7CHejnalA%40SI.EDU%7Cbd4325a59b6146b6d53608d7152450e1%7C989b5e2a14e44efe93b78cdd5fc5d11c%7C0%7C0%7C637001118041377047&sdata=VxvjqtjschRqjnU4Dawm7WLxeIEWPnTAs%2Fjtf0ZdojI%3D&reserved=0>
[University of Georgia]
This message (including any attachments) is covered by the Electronic Communications Privacy Act, 18 U.S.C. 2510-2521. It is the property of the University of Hawaii Foundation. It may contain confidential information intended for a specific individual and purpose. If you are not the intended recipient, you must delete this message. You are hereby notified that any disclosure, copying, or distribution of this message is prohibited.
This message (including any attachments) is covered by the Electronic Communications Privacy Act, 18 U.S.C. 2510-2521. It is the property of the University of Hawaii Foundation. It may contain confidential information intended for a specific individual and purpose. If you are not the intended recipient, you must delete this message. You are hereby notified that any disclosure, copying, or distribution of this message is prohibited.