Golf tournament; Auction - Segment 4
Golf Tournament Example
We get into a couple of fundraising examples. Now we've covered the 4 elements that a charity needs to know before writing a receipt, we're going to apply those rules to 2 examples. The first is a golf tournament, and the second is an auction.
With the golf tournament, if you do not run golf tournaments you can certainly use this structure and apply it to a dinner/dance for example, the same principles will apply. So looking at the facts of this particular case, we have 100 tickets sold at $300 a ticket. With that you have your green fees, cart rental, food and beverage, door prizes, golf hat, hole in one and raffle tickets. So I'm going to talk about each of these separately.
Green fees - sometimes you'll have a case where you have non-members and members. If you have members that are members of that particular golf course and are participating in this event, you can use their cost (the member cost), to determine what amount you can receipt. You may establish a non-member and member receipting practice. I would caution though, in my experience some of the golf courses don't allow for this. So you would have to check with the golf course that you're dealing with, but if you can, certainly member vs. non-member is something you can take into account. Cart rental - pretty straightforward, $25. The food and beverage and gratuities - exclude taxes and they come up to $50 in this case. The way we deal with door prizes is take the total value of all the door prizes and divide them over the number of participants.
So in this case we have $3000 divided over 100 participants gives us $30 per participant. Everybody receives a golf hat. The raffle tickets are sold separately; they do not form part of this main event so you do not have to consider them as part of this transaction. Lastly we're left with the hole in one. There is an official income tax ruling on hole in ones. It is established that for an average golfer on a par 3 it is a 40,000 to 1 odd that they will actually get the hole in one. So we consider this to be nominal and can be ignored from the calculation.
Golf Tournament: Application of the de minimis Rule
First we determine whether any of the items that do not form part of the core event are de minimis. So remember that we can't look at any of the core events, that would be the green fees, the cart rental and food and beverage, but we can look at the extras so we look at the door prizes and the complimentary items. So de minimis threshold is 10% to a cap of $75, so 10% of $300 is $30. Providing the items that we're giving are less than $30 then they do not need to be reduced from the receipt. In this case we see that the extras are $50 so they aren't de minimis and they must be included as an advantage and must be reduced from the value of the donation.
Golf Tournament: Application of the Intention to Give Rule
Here we'll look at the intention to make a gift threshold. Are you returning something back to the donor worth more than 80%? So again, we look at the value of the property being transferred. That's $300 and we multiply that by 80% so $240. Everything that the individual is receiving for participating in this event must be under $240 to be eligible for a receipt. In this case the green fees, cart rental, food and beverage is $150, we add in the prizes and the hat, which is $50 that gives us a total advantage of $200. We do know that it is under the 80% threshold so they can receive a receipt for the difference, so in this case they would receive $100 receipt.
What we recommend is that charities run through this calculation prior to the event so you can set your ticket prices accordingly. This also helps your volunteers in terms of writing the receipts and knowing what amount is acceptable to receipt for, and it promotes good donor relations - everybody is aware of what they're receiving, there's no miscommunications on the day of the event or anything like that.
We get into our second example, which is the auction. Auctions are a little different because there are 2 transactions. First, we look at the items that are donated to the auction and second, we look at the items that are bid on at the auction. What I'll remind you of at this point is at no point in time is a charity obligated to issue receipts for fundraising events, or issuing receipts at all.
In fundraising events in particular you may choose to not issue receipts, perhaps you're concerned whether or not the event will generate enough money maybe you're concerned with establishing the FMV of all the items that are coming in at the auction. So you may choose to not issue receipts, I on the other hand, am going to give you the rules around issuing receipts for both of these. So you can choose not to, you can choose to write receipts for one half and not the other, or none at all.
Property Donated for the Auction We look at the property that is being donated. When an individual donates something to an auction they generally are not receiving anything in return, so in this case we don't have to look at the FMV of the advantage. Some things we do need to consider when we're looking at items donated to an auction, some transactions that come up frequently are when businesses donate gift certificates. So if businesses donate gift certificates for their own services for example, a hair salon or a spa, this is not eligible for a receipt. Also, for non-cash gifts, keep in mind that deemed FMV rule, so whether or not the item was acquired in the last 3 years or as a result of a gifting arrangement. In that case, the individual is entitled to a receipt for the cost or the actual FMV whichever is less.
Lastly, businesses donating out of their inventory get retail. Some organizations are not familiar with this rule. They are entitled to the retail price of the property, so something to keep in mind there. I talked already about appraisals, we have no requirement that third party appraisals be obtained, however, if items are over $1000 you may want to do this in order to properly document and give yourself some confidence of the FMV that you're using to issue the receipt.
Examples of Donations Some common examples of donations. In the first one we have computers being donated out of a business' inventory, so in this case they get the retail price. For personal property, keeping in mind that deemed FMV rule so in this case we have the painting example which I already went through in a previous slide. We also have businesses donating gift certificates so we talked about this a little bit, the charity cannot issue a receipt unless the gift certificate has been purchased.
So what you might have is an individual donor might go and buy a gift certificate from the local grocery store (for example), and donate that gift certificate to a charity, at that point the receipt can be issued to the individual donor. The distinction is that the business themselves that's issuing the gift certificate is not entitled to a receipt because no property has been transferred at that point.
Bids on Items During Auction We look at the items that are being bid on during the auction. Individuals need to know the value of all the items in advance of the auction. So you need to make the bidders aware of the FMV of all the items before the auction begins. The FMV of the item is what we consider to be the advantage to the bidder /donor. So when you look at the example we have here of a sculpture of $500. That $500 FMV is the advantage. So the individual bid $750 on this item, we need to make sure that the intention to make a gift threshold is not exceeded, so the individual has not received an advantage worth more than 80% of the value of their donation. In this case, 80% of $750 is $625 so we know that they did not receive something more than 80% so they are entitled to a receipt for the difference of $250.
What we recommend when you're doing auctions and you would like to issue receipts, you have to provide the FMV of all the items, we recommend you also provide the minimum bid. Run that intention to make a gift threshold calculation for all of your bidders so that the individuals who are bidding know "if I bid over this I am eligible for a receipt". It helps your volunteers, promotes good donor relations and makes it easier on everyone. The way you can do that is multiply the value of the item (so in this case, the sculpture) by 125% and that gives you your minimum bid.
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