Auctions – Allowability Issues
Auction cash receipts and checks forwarded for deposit must include documentation that clearly supports the fact that the event generating the income was sponsored by the Foundation. Examples of adequate documentation include printed brochures, web pages and event invitations that prominently indicate sponsorship by the Foundation on the front page.
If there is a gift component (the amount paid above fair market value), the bid sheets and/or a listing of the fair market value must be sent to Advancement Services for gift determination purposes with the gift transmittal.
The Foundation Development office is responsible for maintaining the bid sheets on file in the event of an audit request.
Donor Considerations: Items contributed for an auction may be tax-deductible. There are two underlying rules:
- The item must be a gift in the eyes of the IRS. This excludes material recognized as either a service or partial interest. Examples of non-deductible services include free massages, legal advice, tax preparation, etc. Partial interest gifts include the use of a vacation home, free rounds of golf, free airline tickets, or stays at a hotel, etc.
- The item must actually sell at the auction. Therefore, receipts are not issued for donated items until after the conclusion of the auction. Receipts should include a description of the donated item without indicating its value. Since the donor is not receiving anything of value for the donation, it is considered a “gift in kind”.
Buyer Considerations: A gift receipt may be issued if the following occurs:
- Generally there would not be a tax deduction unless the amount paid for the item is more than the listed fair market value of the item.
- Individuals who purchase items at a charity auction may claim a charitable contribution deduction for the excess of the purchase price paid for an item overits listed fair market value. The buyer must be able to show, however, that he or she knew that the amount paid was more than the value of the item. For example, the charity may publish the estimated fair market value on the bid sheet used during the auction. If the buyer pays more than the published value, the difference between the amount paid and the published value will be considered a charitable contribution deduction and a receipt for the difference will be issued.