The rules around listing fair market values
Here’s a common fundraising auction question:
“Is it OK to put the fair market value of an auction item on the receipt, instead of listing it on the bid sheet, auction catalog or display?”
Some people believe (mistakenly, in my mind) that guests will pay more for an item if they don’t know the value of it.
The IRS regulation explains that for a donation above the fair market value to be considered a gift, the winning bidder must be told the fair market value before bidding.
Here is the IRS section, with my emphasis added.
Donors who purchase items at a charity auction may claim a charitable contribution deduction for the excess of the purchase price paid for an item over its fair market value. The donor must be able to show, however, that he or she knew that the value of the item was less than the amount paid.
For example, a charity may publish a catalog, given to each person who attends an auction, providing a good faith estimate of items that will be available for bidding. Assuming the donor has no reason to doubt the accuracy of the published estimate, if he or she pays more than the published value, the difference between the amount paid and the published value may constitute a charitable contribution deduction.
One might say, “Well, a receipt shows that the buyer knew that the value was less than the amount paid. That should suffice.”
Not really.
A receipt proves that the buyer learned that the value was less than the amount paid AFTER he made the decision to bid and buy. He didn’t know the value until he bought the item.
The IRS doesn’t say that the buyer must learn the value.
The IRS states that “the donor … must be able to show he KNEW the value.”
“Knew” =”understood with certainty.” It indicates that the buyer had advance knowledge of the value.
A receipt can’t offer advance knowledge as it’s given after the sale has been made.
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Are “priceless” items tax deductible?
Now let’s talk about another debated topic: priceless items.
Priceless items are those with no firm value, such as a coveted parking spot in front of the school, or the behind-the-scenes tour of the television station. They are desirable, but not typically for sale on the open market. Hence, many nonprofits label them as priceless.
If an item is labeled as “priceless,” there is NO TAX DEDUCTION.
The winning bid establishes the fair market value. This means there is no deduction.
Here’s what I pulled from the Johns Hopkins Medicine auction guidelines. Point 5 speaks to this specifically.
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Each item of a Silent Auction should be valued at the Fair Market Value. This value must be listed on the Bid Sheet at the auction table, as well as in any printed list of the auction items.
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Each item of a Live Auction should be valued at the Fair Market Value and that value must be listed on a printed list of the auction items.
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Donors of the items for Silent and Live Auctions should provide the Fair Market Value of their item/service. If the item is a ‘collectible’ reasonable efforts should be made to assess the value (e.g. contact an antique or collectible dealer who has some knowledge of similar items).
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Only winning bids that are over the stated Fair Market Value will receive receipt information on their charitable gift.
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If an item is not valued, or valued as priceless, the final auction bid then establishes the item’s fair market value, therefore no portion is tax-deductible.
To be kind to your buyers, consider valuing your priceless items at $1.00.
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Does it still seem unclear to you, or open to misinterpretation?
I’m not writing these rules, so my advice is to direct all questions to the IRS.
At our auction this year we had over 1200 items. We run a silent auction concurrently with our live auction. We had everything from handmade beaded earrings to a John Deere tractor. Does every item need to have a value?? We do currently have a field in our data base to assign a value, but don’t always use it for a variety of reasons.Should we be concerned about every item, only brand new, or all items?
I’m no expert on the IRS tax code, but as I read through these rules, I don’t see anything that excludes items of certain values, or excludes older / used items, or reads (for instance), “if your event has over 1000 items, you can ignore these requirements for some items.” I advise my clients to show the value on all items.
So…how would these differ now that many auctions are online? (no printed catalog (yay!), no printed bid sheet (double yay!), display printed sheet and display online only shows starting bid and raise amount). would the FMV need to be written into every item or package description?
Just because the technology has changed, I don’t think that changes the point of the IRS rules.
As I understand the regulations, you can show the value in any number of places — a printed catalog (which is a traditional approach, and one I still strongly advocate and explain why here), an online catalog, a slideshow, a display during the reception, an email blast out to all bidders prior to the event, etc.
The point is that the bidder has an idea of value PRIOR to bidding, and it’s up to the nonprofit to provide that. There are many ways that it can and should be shared. There doesn’t seem to be any caveat for “items less than $100” or “only live auction items.” You can certainly consult a tax expert, but as I read these rules, they seem pretty straightforward.
Wow – excellent info, Sherry. I will share the link to this post with our customers.
I’m also going to start investigating whether displaying the FMV in an online catalog *only*, prior to the event, would be adequate. I’ll report back if I find out anything definitive.
Yes, please do report back! I’d love to hear what you learn. Thanks Roger!
Roger, What’s the verdict on whether displaying the FMV in an online catalog *only*, prior to the event, is adequate?
If the event does not have a printed catalog, but an online and accessible catalog prior to the event, it seems that would be acceptable.
Thanks!
I’m not Roger, but I’ll share my opinion. As I understand the regulations, you can show the value in any number of places — an online catalog, a printed catalog, a slideshow, a display during the reception, an email blast out to all bidders prior to the event, etc. I don’t think the point is that it must be a catalog, but that the bidder has an idea of value PRIOR to bidding.
Hi Sam,
I do think that if there is no printed catalog, then you would be covered. But if you supplement that with any printed catalog (or even just a list of the auction items), then you need to include the FMV there as well.
Thanks,
Roger
You just answered a question I get asked all the time! Thank you once again for your awesomeness!
🙂 Glad to be of help, Yen Ly. Miss you!