## Facts

- The Internal Revenue Service issued administrative guidance to help charitable organizations advise donors about the deductible portion of payments made in fundraising contexts where donors receive goods or privileges in return.
- Prior IRS guidance required donors’ deductions under I.R.C. § 170 to be limited to the amount paid in excess of the fair market value of benefits received in exchange.
- Congress expressed concern that donors were not being given accurate information about nondeductible quid pro quo portions of payments, impairing proper tax reporting.
- Charitable organizations reported that valuing small “token” items and similar premiums was difficult and burdensome, particularly when the benefits were trivial relative to the payment.
- The guidance establishes objective safe harbors under which certain benefits are treated as having insubstantial fair market value, permitting charities to state that the full payment is deductible.

## Issues

1. Under what conditions may benefits or premiums provided to donors be treated as insubstantial so the donor may deduct the full amount paid under I.R.C. § 170?
2. What objective thresholds may charities use to determine when quid pro quo benefits may be disregarded for purposes of advising donors about deductibility?

## Decision

- The IRS set two principal safe harbors under which benefits are treated as insubstantial for I.R.C. § 170 deductibility disclosures.
- Safe harbor (percentage-and-dollar test): in a fundraising campaign where the charity informs patrons of deductibility, benefits are insubstantial if the fair market value of all benefits is not more than the lesser of 2% of the payment or $50.
- Safe harbor (low-cost articles test): benefits are insubstantial if the donor makes a payment above a minimum threshold and receives only “low-cost articles,” with aggregate cost to the charity within the statutory limits applicable to low-cost articles under I.R.C. § 513(h)(2).
- For the low-cost articles safe harbor, the IRS permitted use of the charity’s cost (rather than fair market value) for administrative reasons in that limited setting.
- If the safe-harbor conditions are met, the full amount of the donor’s payment may be treated as deductible, and the charity may inform donors that the benefits are not substantial.

## Legal Principles

- A charitable contribution deduction under I.R.C. § 170 is generally limited to the excess of the amount paid over the fair market value of goods or privileges received in return.
- Administrative safe harbors may treat certain token benefits as having insubstantial value, allowing the full payment to be treated as deductible for donor-information purposes.
- Under the percentage-and-dollar safe harbor, insubstantiality is determined by a combined proportional and absolute cap (lesser of 2% of payment or $50) applied to the aggregate fair market value of benefits.
- Under the low-cost articles safe harbor, insubstantiality may be determined by aggregate cost to the charity, tied to low-cost article limits referenced in I.R.C. § 513(h)(2), when the donor’s payment exceeds a minimum threshold and only qualifying articles are provided.
- The guidance is intended to standardize donor communications and support enforcement by providing clear valuation thresholds for trivial benefits.

## Conclusion

The IRS established safe-harbor standards for token fundraising benefits, permitting charities to treat qualifying premiums as insubstantial and to advise donors that the full amount of their payment is deductible under I.R.C. § 170 when the specified thresholds are satisfied.


Rev. Proc. 90-12, 1990-1 C.B. 471 (1990)