1 Rev. Rul. 67-246; 1967-2 C.B. 104 Advice has been requested concerning certai n fund-raising practices which are fre- quently employed by or on behalf of charitabl e organizations and which involve the de- ductibility, as charitable contri he Internal Revenue Code of butions under section 170 of t 1954, of payments in connection wit h admission to or other parti cipation in fund-raising ac- tivities for charity such as charity balls, bazaars, banquets, shows, and athletic events. are commonly employed to raise funds for charity in two Affairs of the type in question ways. One is from profit der ived from sale of admissions or other privileges or benefits heir value warrants. Another is through the connected with the event at such prices as t on of gifts in combination with the sale of the use of the affair as an occasion for solicitati benefits involved. In cases of admissions or other privileges or the latter type the sale of the privilege or benefit is combined with solicitat ion of a gift or donation of some amount in addition to the sale value of the admission or privilege. The need for guidelines on the subject is indicated by the frequency of misunderstanding of the requirements for deductibility of such payments and increasing in cidence of their er- roneous treatment for income tax purposes. In particular, an increasing number of instan ces are being reported in which the public has been erroneously advised in advertisements or solicitations by sponsor s that the entire amounts paid for tickets or other privileges in connection with fund-raising affairs for charity are deductible. Audits of returns are reveal ing other instances of erroneous advice and misunderstanding as to what, if any, portion of such payments is deductible in various cir- es in which taxpayers are being misled by cumstances. There is evidence also of instanc s which make it appear from t he wording of the solicitation questionable solicitation practice that taxpayer's payment is a "contribution," whereas the payment solicited is simply the purchase price of an item offered for sale by the organization. ance of deductions for charitable contributions, Section 170 of the Code provides for allow subject to certain requirements and limitations. To the extent here relevant a charitable contribution is defined by that section as "a contribution or gift to or for the use of" certain specified types of organizations. To be deductible as a charitable contribution for Federal income tax purposes under sec- tion 170 of the Code, a payment lified charitable organization to or for the use of a qua must be a gift. To be a gift for such purposes in the present context there must be, among other requirements, a payment of money or transfer of property without adequate consid- eration. As a general rule, where a transaction involving a payment is in the form of a purchase of an item of value, the presum ption arises that no gift has been made for charitable contribu- tion purposes, the presumption being that the payment in such case is the purchase price.
2 Thus, where consideration in the form of adm issions or other privileges or benefits is re- ceived in connection with payments by patrons of fund-raising affairs of the type in ques- tion, the presumption is that t he payments are not gifts. In such case, therefore, if a chari- ment, the burden is on the claimed with respect to the pay table contribution deduction is not the purchase price of the privileges or taxpayer to establish that the amount paid is qualify as a gift. benefits and that part of t he payment, in fact, does ial element is proof t hat the portion of the In showing that a gift has been made, an essent payment claimed as a gift represents the excess of the total amount paid over the value of the consideration received therefor. This may be established by evidence that the pay- ment exceeds the fair market value of t he privileges or other benefits received by the amount claimed to have been paid as a gift. Another element which is important in establ ishing that a gift was made in such circum- stances, is evidence that the payment in excess of the value received was made with the intention of making a gift. While proof of su ch intention may not be an essential require- ment under all circumstances and may someti mes be inferred from surrounding circum- stances, the intention to make a gift is, never theless, highly relevant in overcoming doubt in those cases in which there is a question whether an amount was in fact paid as a pur- chase price or as a gift. Regardless of the intent ion of the parties, however, a pay ment of the type in question can in any event qualify as a deductible gift only to the extent that it is shown to exceed the fair market value of any consideration received in the form of privileges or other benefits. In those cases in which a fund-raising activity payments which are in- is designed to solicit tended to be in part a gift and in part the purchas e price of admission to or other participa- tion in an event of the type in question, the organization conducting the activity should em- ear not only that a gift is bei ploy procedures which make cl ng solicited in connection with the sale of the admissions or other privileges related to the fund-raising event, but also, the amount of the gift being solicited. To do this , the amount properly a ttributable to the pur- chase of admissions or other privileges and the amount solicited as a gift should be deter- mined in advance of solicitation. The res pective amounts should be stated in making the solicitation and clearly indicated on any ticket, re ceipt, or other evidence issued in connec- tion with the payment. In making such a determination, the full fair market value of the admission and other bene- fits or privileges must be taken into account. Where the affair is reasonably comparable to events for which there are established charges for admission, such as theatrical or athletic performances, the established charges should be treated as fixing the fair market value of the admission or privilege. W here the amount paid is the same as the standard admission charge there is, of course, no deductible contribut ion, regardless of the intention of the par- ties. Where the event has no such counterpar t, only that portion of the payment which ex- ceeds a reasonable estimate of the fair mark et value of the admission or other privileges may be designated as a charitable contribution.
3 The fact that the full amount or a portion of the payment made by the taxpayer is used by purposes has no bearin g upon the determination the organization exclusively for charitable the amount qualifying to be made as to the value of the admission or other privileges and as a contribution. are not utilized does not entitle the pa- Also, the mere fact that ticke ts or other privileges d otherwise be allowable. contribution deduction than woul tron to any greater charitable The test of deductibility is not whether the right to admission or privileges is exercised but he taxpayer. If a patr on desires to support whether the right was accepted or rejected by t an affair, but does not intend to use the tickets or exercise the ot her privileges being of- of the amount he wishes to contribute, in fered with the event, he can make an outright gift cket or other evidence of any of the privi- which event he would not accept or keep any ti leges related to the event connec ted with the solicitation. ll inclusive of the legal requirements re- The foregoing summary is not intended to be a e contributions for Federal income tax pur- lating to deductibility of payments as charitabl poses. Neither does it attempt to deal with many of the refi nements and distinctions which sometimes arise in connection with questions of whether a gift for such purposes has been made in particular circumstances. The principles stated are intended instead to summarize with as little complexity as bility of payments in possible, those basic rules which govern deducti the majority of the circumstances involved. They have their basis in section 170 of the Code, the regulations thereunder, and in court decisions. The obser vance of these provisions will provide contributors that their claimed deductions in such cases are greater assurance to taxpayer allowable. Where it is disclosed that the public or the patrons of a f undraising affair for charity have been erroneously informed concerning the ex tent of the deductibility of their pay- ments in connection with the affair, it necessarily follows that all char itable contribution de- ductions claimed with respect to payments made in connection with the particular event or affair will be subject to special scrutiny and may be questioned in audit of returns. In the following examples applic ation of the principles discussed above is illustrated in connection with various types of fund-raising activi ties for charity. A gain, the examples are drawn to illustrate the general rules involved without attempting to deal with distinctions that sometimes arise in special situations. In each instance, the charitable organization involved is assumed to be an organization previously determined to be qualified to receive deductible charitable contributions under secti on 170 of the Code, and the references to deductibility are to deductibility as charitable contributions for Federal income tax pur- poses.
4 Example 1: M Charity sponsors a symphony concert fo M’ s The r the purpose of raising funds for agrees to pay a fee which is ca M lculated to reimburse the sym- charitable programs. phony for hall rental, musicians' salaries, advert ising costs, and printing of tickets. Under is entitled to all receipts from ticket sales. M sells tickets to the concert the agreement, M tra circle seats. These prices approxi- charging $5 for balcony seats and $10 for orches mate the established admissi on charges for concert performances by the symphony or- chestra. The tickets to the concert and the advertising material prom oting ticket sales em- ed by, and is for the benefit of phasize that the concert is sponsor Charity. M Notwithstanding the fact that taxpayers who he concert may think acquire tickets to t M they are making a charitable contribution to or for the benefit of Charity, no part of the payments made is deductible as a charitable contribution for Federal income tax purposes. Since the payments approximat e the established admission charge for similar events, there is no gift. The result would be the same even if the advertising materials promoting are "tax deductible" and tickets to the con- ticket sales stated that amounts paid for tickets cert were purchased in reliance upon such statem tickets or other ents. Acquisition of privileges by a taxpayer in reliance upon statements made by a charitable organization that the amounts paid are deductible does no t convert an otherwise nondeductible pay- ment into a deductible char itable contribution. Example 2: The facts are the same as in Example 1, except that the M Charity desires to use the concert as an occasion for the so licitation of gifts. It indicates t hat fact in its advertising ma- ents solicited in connection with each class terial promoting the event, and fixes the paym of admission at $30 for orchestra circle seats and $15 for balcony seats. The advertising and the tickets clearly reflect the fact that the established admission charges for compara- ble performances by the symphony orchestra ar e $10 for orchestra circle seats and $5 for balcony seats, and that only t he excess of the solicited am ounts paid in connection with ablished prices is a contribution to M. admission to the concert over the est Under these circumstances a taxpayer who makes a payment of $60 and receives two his payment exceeds the established admission orchestra circle seat tickets can show that charge for similar tickets to comparable perfo orchestra by $40. rmances of the symphony The circumstances also confirm that amount of the payment was so licited as, and intended to be, a gift to M Charity. The $40, therefore, is deduc tible as a charitabl e contribution. Example 3: Example 1. This A taxpayer pays $5 for a balcony ticket to the concert described in taxpayer had no intention of using the ticket when he acquired it and he did not, in fact, at- tend the concert. No part of the taxpayer's $5 payment to the M Charity is deductible as a charitable con- tribution. The mere fact that the ticket to the concert was not used does not entitle the tax- payer to any greater right to a deduction than if he did use it. The same result would follow if the taxpayer had made a gift of the ticket to another individual . If the taxpayer desired to support M, but did not intend to use the ticket to the concert, he could have made a qualify-
5 ing charitable contribution by making a $5 payment to and refusing to accept the ticket M to the concert. Example 4: M A receives a brochure soliciting c Charity. The bro- ontributions for the support of the chure states: "As a grateful token of appreciation for your help, the M Charity will send to you your choice of one of the several arti cles listed below, depending upon the amount of catalog-type listing of arti- the brochure is devoted to a your donation." The remainder of cles of merchandise with the suggested am ount of donation necessary to receive each particular article. There is no evidence of any significant difference between the suggested ue of any such article. The brochure contains the further donation and the fair market val M notation that all donations to Charity are tax deductible. ed amounts solicited by Charity are not deductible as a Payments of the suggest M charitable contribution. Under the circumstances, the amounts solicited as "donations" are simply the purchase prices of the ar ticles listed in the brochure. Example 5: A taxpayer paid $5 for a ticket which entitled him to a chance to win a new automobile. The raffle was conducted to raise funds for the X Charity. Although the payment for the ticket was solicited as a "contribution" to the X Charity and designated as such on the face of the ticket, no part of the pay ment is deductible as a charit able contribution. Amounts paid for chances to participate in raffles, lotterie s, or similar drawings or to participate in e not gifts in such circumstances, and there- puzzle or other contests for valuable prizes ar fore, do not qualify as deductible charitable contributions. Example 6: A women's club, which serves principally as an auxiliary of the X Charity, holds monthly he luncheon and any entertainment that may membership luncheon meetings. Following t have been arranged, the members transact any membership business which may be re- quired. Attendance of the luncheon meetings is promoted through the advance sale of tickets. Typical of the form of the tickets is the following: While the ticket does not specifically state that the amount is tax deductible, the charac- terization of the $5.50 price of the ticket as a "donation" is highly misleading in that it is done in a context which suggests that the price of the ticket is a charitable contribution and, therefore, ta cts recited, no part of th e payment is deductible, x deductible. On the fa since there is no showing that any part of the pric e of the ticket is in fact a gift of an amount in excess of the fair market val ue of the luncheon and entertainment. Example 7: In support of its summer festival program of 10 free public concerts, the M Symphony, a charitable organization, mails out brochures so liciting contributions fr om its patrons. The brochure recites the purposes and activities of the organization, and as an inducement to contributors states that: "A contribution of $20 entitles the donor to fe stival membership for the season and free admission to the premiere showin g of the motion picture * * * st arring * * * and * * *.
6 Cocktails - 7:00 P.M. Curtain - 8:15 P.M. This special premiere performance is not open to the public. * * * it also entitles you to "Your contribution will benefit an important community function; stival concerts and events." 110 choice reserved seats for all summer fe The envelope furnished for mailing in payments contains the following: "Enclosed is my tax-deductible membership contribution to the M Symphony summer May 1 premiere perform- concert program in the amount of $ - . " S end me - tickets to the premiere performance for festival members, ance. "I do not desire to attend the special butI am enclosing my contribution." A taxpayer mails in a payment of $20, indi cating on the envelope form that he desires a howing of the film. ticket to the premiere s No part of the payment is deductible as a c haritable contribution. Payment of the $20 the privilege of attending entitles an individual not only to the cocktail party and the pre- miere showing of the film, but also the privilege of choice reserved seats for the summer festival concerts. Under the circumstances , no part of the payment qualifies as a gift, since there is no showing that the payment exceeds the fair ma rket value of the privileges involved. Even if a "contributor" indicates he does not desire to attend the cocktail party and premiere showing of the film, it would still be incorre ct for the organization to charac- terize the $20 payment as a deductible charit able contribution, since under these circum- stances the fair market value of the privilege of having choice reserved seats for attending the concerts would, in all likelihood, exceed the amount of the paymen t. However, if the taxpayer wishes to support the M Symphony, and advises the organization that he does not desire the ticket to the premiere and does not want seats reserved for him, the amount M able contribution. contributed to is deductible as a charit Example 8: W Charity plans a theater party consisting of admission to a In order to raise funds, r-theater buffet. The advertising material premiere showing of a motion picture and an afte and tickets to the theater party designate $5 as an admission charge and $10 as a gift to W Charity. The establis hed admission charge for premiere s howings of motion pictures in the locality is $5. Notwithstanding W’ s representations respecting t he amount designated as a gift, the specified $10 does not qualify as a deductible charitable contribution because s allo- W' cation fails to take into account the value of admission to the buffet dinner. Example 9: The X Charity sponsors a fund-raising bazaar, t he articles offered for sale at the ba- zaar having been contributed to X by persons desiring to support X' s charitable pro- grams. The prices for the articles sold at the bazaar are set by a committee of X with a view to charging the full fair ma rket value of the articles.
7 A taxpayer who purchases arti itled to a charitable contribu- cles at the bazaar is not ent X for such articles. This is true even tion deduction for any portion of the amount paid to X though the articles sold at the bazaar are acquired and sold without cost to and the total proceeds of the sale of the articles are used by X exclusively for charitable purposes. Example 10: Charity undertake a pr ogram of selling Christmas cards to raise The members of the M funds for the organization's activities. The cards are purchased at wholesale prices and are resold at prices comparable to the prices at which similar cards are sold by regular re- customers, the differenc e between the amount tail outlets. On the receipts furnished to its received from the customer and the wholesale co st of the cards to t he organization is des- tible charitable contribution. ignated by the organization as a tax-deduc The organization is in error in designating this difference as a tax-deductible charitable contribution. The amount paid by customers in excess of the wholesal e cost of the cards to the organization is not a gi ft to the organization, but instead is part of the purchase price or the fair market value of the cards at the retail level. Example 11: und-raising drive of the X Charity, a local department store In support of the annual f agrees to award a transistor radio to each per son who contributes $50 or more to the char- ity. The retail value of the radio is $15. B receives one of the transistor radios as a result of his contribution of $100 to X. Only $85 of B’ s payment to X qualifies as a deductible charitable contribution. In determining the po rtion of the payment to a charitable organiza- ion in these circumstances, the fair market tion which is deductible as a charitable contribut value of any consideration received for the payment from any source must be subtracted from the total payment. Example 12: To assist the Y Halloween Ball to raise funds for Y' s ac- Charity in the promotion of a agree to pay the entire costs of the event, in- tivities, several individuals in the community a, publicity, rental cluding the costs of the orchestr eshments, and any of the ballroom, refr organizations and clubs agree to undertake the other necessary expenses. Various civic sale of tickets for the dance. The publicity and le of the tickets em- solicitations for the sa phasize the fact that the entire cost of t he ball is being borne by anonymous patrons of Y and by the other community groups, and that the ent ire gross receipts from the sale of the tickets, therefore, will go to Charity. The price of the ticke ts, however, is set at the fair Y market value of admission to the event. No part of the amount paid for admission to t he dance is a gift. Therefore, no part is deductible as a charitable contribution. The fa ct that the event is conducted entirely with- out cost to Y Charity and that the fu ll amount of the admission charge goes directly to Y for its uses has no bearing on the deductibility of the amounts paid for admission, but does have a bearing on the deductibility of the amount s paid by the anonymous patrons of the event. The test is not the cost of the event to Y, but the fair market va lue of the considera- tion received by the purchaser of the ti cket or other privileges for his payment.