Every tax season I seem to hear an ad from a tax preparation company. They confidently state their tax professionals will be able to find deductions overlooked by your previous tax preparer.
Sounds familiar, doesn’t it?
If you’ve ever talked with more than one tax expert, you probably noticed that each one has a different interpretation of what you legally can and cannot do. What is legal in tax law seems to depend on who you talk to and what mood they are in!
I share this because as we delve into the issue of whether you should list auction item values in your gala catalog, remember that:
- Your nonprofit’s accountant might recommend something different;
- I’m not a tax expert; and
- Tax laws change frequently.
The topic of printing package values often leads to heated discussions.
The argument against printing item values in a catalog is twofold.
1. Some items have a straightforward value.
For items with a straightforward value — a $300 bike, a home that rents for $2,000 a week, a bottle of wine that retails for $60 — naysayers of printing values argue that guests will never pay more for that bike / trip / wine than the printed value.
I don’t agree with that, but this is their argument.
2. The value of other items is tied to the intrinsic worth of the experience.
For instance, “Head of School for the Day” or “Lunch with the mayor” isn’t about the nominal value of the lunch; the value is tied up in sitting down one-on-one with someone special.
“Someone could pay $20,000 for that lunch!” a committee member will emphasize. Maybe, but it’s unlikely.
For these items, groups often resort to labeling them as “priceless” instead of listing $0 value. Yet from the courses I’ve taken, my understanding is that the IRS prefers that nonprofits do not use worded values like “priceless” and instead lists the actual dollar value. If the item is valued at $0, you list $0.
As I understand the rules, nonprofits must list this fair market value in a catalog or in some other location (perhaps a slideshow or table display) that is viewable by a guest before he decides to bid.
Some groups may feel they comply with the regulations by putting the value of an item on a receipt. But this means the winning bidder officially learns of an item’s value after he raises his hand to bid. Thus, including the market value on the receipt only and no where prior to bidding would not meet the IRS requirement.
One instructor shared that failure to comply with this rule meant that the nonprofit (not the audited taxpayer) would be required to pay the tax, interest, and penalty on any deduction unfairly taken by a taxpayer.
Beyond any IRS laws, let’s consider one advantage to listing values in a catalog: The value of educating your buyer.
I’ve found that many bidders underestimate values. Rarely do they overestimate values.
So one advantage of listing the fair market value could be that guests can begin to appreciate what your trips, baskets, and experiences really do cost.
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For official information on nonprofit auctions in the USA, check out these IRS statements at IRS.gov:
Charitable Contributions (pdf)
