Last week a hot topic flew across the listservs I am a member of. Yesterday, I brought it to my home base listserv to the surprise and sometime delight of some of my professional colleagues across the land. The IRS has just released its section 526 ruling for 2012. And lo and behold, there in tax-ease for all of us to misinterpret is a stricter ruling on the giving of "token gifts" to donors.
---The quid pro quo benefit limits for 2012 have just been announced by the IRS. They are as follows:
For gifts IN EXCESS OF $49.50, you may provide insubstantial (token) items, containing the organization name or logo, without reducing the gift amount as long as the cumulative low-cost value is LESS THAN $9.90.
For gifts below $49.50, you must fully disclose the value of all such benefits - and reduce the gift accordingly - if that benefit value is less than $1.
Below that gift level the token benefit exclusion no longer applies.
Therefore, for a gift of $25, the highest cumulative FMV of benefits you can provide without having to disclose/reduce the gift is a whopping 50 cents. A $10 gift = 20 cents in benefits without disclosure.
For more substantial benefits, like events not items, you do not have to disclose the value as long as the cumulative value of all benefits does not exceed $99 or 2% of the amount given - whichever is LESS.
This is why, on every solicitation some organizations send, they include a check box for: "Please waive benefits so we can deduct the full amount of donation for tax purposes."
See page 17 here for further clarification.
The "receipt" of the benefit does not have to be at the exact second the gift is made - getting it in the mail or in person a few weeks or months later as a direct result of a gift means that the donor "receives" something in exchange.”
These limits are right on trend and have made many of us in the donor relations world that abhor tchotchkes very happy. But for many of my colleagues the panicked question remains, "I'm supposed to follow these rules!?!" The answer is simply YES. Not only are we stewards of donors funds and the builders of relationships, we are also their advocates. Think of us as nurses in this sense, whatever is best for the patient/donor we MUST advocate for. This includes helping to protect them from losing their deductibility of their gift because we just HAD to give them another pen set. We must advocate and ensure that these IRS rules are followed to the letter.
I think from an internal perspective this means a sit down with your counsel and having them make a definitive ruling on this tax code for your organization. The next step involves your communicating with your internal constituents and explaining this to them. Making sure that they understand that this isn't just an idea you came up with so you can get rid of that closet full of gifts in your office(ahem)... Complete understanding and compliance is a must, it is our pleasure and duty to at all times keep the donor in mind.
According to Penelope Burk, who I will quote here, this directly aligns with what donors are telling her repeatedly in her studies and jives with what some of us have been preaching for years. Donor relations is not about an exchange of money for items or perks, it is a relationship building, appreciative, strategic, and holistic view of a relationship.
"On this issue, both the IRS and donors are in complete agreement. Donors don't want these token gifts and sending them makes fundraisers' jobs much more difficult, especially in tough economic times. Why give donors one more reason to question the cost-effectiveness of fundraising appeals and the sincerity of not-for-profits who solicit with a sense of urgency, then refund some of the donor's gift in the form of a trinket that they never asked for and don't want.
There are, however, gifts that are truly appreciated by donors, which positively contribute to their retention and higher gift value, and which have no negative implication. They are:
• beautiful, original thank you letters -- considered to be the ultimate in donor recognition and often referred to by donors as "gifts";
• thoughtful, impromptu calls that acknowledge a recent gift or simply the ongoing loyalty of a donor -- stunningly effective at furthering donor retention, a source of tremendous information about donors for the purpose of cultivating them into major giving, and highly effective as a motivator for volunteers and paid professional fundraisers, reminding them why they do this job.
It's not often that I am able to say that the IRS got it right, but they certainly have on this issue. They are doing the fundraising industry and, in particular, our stewardship profession, a favor."
So, my challenge to you is, what are you doing to advocate for your donors? Are there other cases in which you have protected their interests? I look forward to your comments.
Until then, I'm having a garage/closet sale, anyone want a branded paperweight?? Ha.
--- Upcoming is another swap brought to you by the makers of the acknowledgment and solicitation swap...Get your best INVITATIONS ready!!---