Tax season is upon us. I just saw a television ad from a tax preparation company.
They confidently stated their tax professionals would be able to find deductions overlooked by your previous tax preparer.
Sounds familiar, doesn’t it?
If you’ve ever talked with more than one tax expert, you probably noticed that each one has a different interpretation of what you can and cannot do, legally. Sometimes what is legal in tax law seems to depend on who you talk to.
I share this because as we delve into the issue of whether you should list auction item values in your gala catalog, remember that 1, your nonprofit’s accountant might recommend something different than what I’ve heard; 2, I’m not a tax expert; and 3, tax laws change frequently.
The topic of printing package values often leads to heated discussions.
The argument against printing item values is two-fold.
1. Some items have a straightforward value.
The bike is $300. The home rents for $2000 per week. That bottle of wine retails at $60.
Naysayers of printing values are concerned that guests won’t pay more for that bike / trip / wine than the printed value.
2. If an item’s value is attributable to the intrinsic worth of the experience – a la “Headmaster for the Day” or “Lunch with the mayor” – the committee’s debate rages.
“Someone could pay $10,000 for that!” a committee member will emphasize (even though in the entire history of the event, nothing has ever sold for more than $2000).
Oftentimes groups resort to labeling these as “priceless” items rather than list a $0 value.
My understanding (based on courses I’ve taken) is that the IRS wants nonprofits to list the value of auction donations in the catalog or in some other location (perhaps a Powerpoint slide or table display) that can be viewed by the bidder before he decides to bid.
Some groups may feel they comply with the regulations by putting the value of the item on the receipt. This means that the winning bidder officially learns of an item’s value after he raises his hand, bids, and buys.
My understanding is that this would not meet the IRS requirement. One instructor shared that the failure to comply with this rule meant that – if caught – the nonprofit (not the audited taxpayer) would pay the tax, interest, and penalty on any deduction unfairly taken by a taxpayer. Whoa!
Beyond any laws, let’s consider one perk to listing values in a catalog: education.
I’ve found that many bidders underestimate values. So one advantage of listing the value could be that guests begin to comprehend what those trips, baskets, and experiences really do cost.
For official information on nonprofit auctions in the USA, check out these IRS statements at IRS.gov:
Charitable Contributions (pdf)
Great article! Lots of great info, some of which I’m gonna use for my online silent auctions. I always list the value, try to be as transparent as possible.
Sherry Truhlar says
Glad you enjoyed it, Travis. That said, I can’t speak to strategies for for-profit entities … I’m geared to help registered 501(c)(3)s. So I’ll have to let you decide what works best for your biz! 🙂
Mazarine Treyz says
And what do you think about the staff time involved in putting together the baskets? Should that not be part of the value of the basket, as well?
I do think people tend to undervalue the items, and people should know how much they are allowed to write off on their taxes, so I would vote for keeping them in. Do you agree?
Sherry Truhlar says
Thanks for your comment, Mazarine.
Though I think staff time is a grand suggestion, my opinion doesn’t matter … because in all cases, it comes down to IRS policy. 🙂 Donated time isn’t one of those allowable areas.
I think the key is to just follow whatever the IRS mandates.