Internal Revenue Service
Revenue Ruling
Rev. Rul. 67-246
1967-2 C.B. 104
Sec. 170
Caution: Amplified by Rev. Proc. 90-12
Caution:Distinguished by Rev. Rul. 74-348
IRS Headnote
Deductibility, as charitable contributions under section 170 of the
Internal Revenue Code of 1954, of payments made by taxpayers in connection
with admission to or other participation in fund-raising activities for
charity such as charity balls, bazaars, banquets, shows, and athletic
events.
Full Text
Rev. Rul. 67-246
Advice has been requested concerning certain fund-raising practices which
are frequently employed by or on behalf of charitable organizations and
which involve the deductibility, as charitable contributions under section
170 of the Internal Revenue Code of 1954, of payments in connection with
admission to or other participation in fund-raising activities for charity
such as charity balls, bazaars, banquets, shows, and athletic events.
Affairs of the type in question are commonly employed to raise funds for
charity in two ways. One is from profit derived from sale of admissions or
other privileges or benefits connected with the event at such prices as
their value warrants. Another is through the use of the affair as an
occasion for soliciation of gifts in combination with the sale of the
admissions or other privileges or benefits involved. In cases of the latter
type the sale of the privilege or benefit is combined with solicitation of
a gift or donation of some amount in addition to the sale value of the
admission or privilege.
The need for guidelines on the subject is indicated by the frequency of
misunderstanding of the requirements for deductibility of such payments and
increasing incidence of their erroneous treatment for income tax purposes.
In particular, an increasing number of instances are being reported in
which the public has been erroneously advised in advertisements or
solicitations by sponsors that the entire amounts paid for tickets or other
privileges in connection with fund-raising affairs for charity are
deductible. Audits of returns are revealing other instances of erroneous
advice and misunderstanding as to what, if any, portion of such payments is
deductible in various circumstances. There is evidence also of instances in
which taxpayers are being misled by questionable solicitation practices
which make it appear from the wording of the solicitation that taxpayer's
payment is a `contribution,' whereas the payment solicited is simply the
purchase price of an item offered for sale by the organization.
Section 170 of the Code provides for allowance of deductions for charitable
contributions, subject to certain requirements and limitations. To the
extent here relevant a charitable contribution is defined by that section
as `a contribution or gift to or for the use of' certain specified types of
organizations.
To be deductible as a charitable contribution for Federal income tax
purposes under section 170 of the Code, a payment to or for the use of a
qualified charitable organization must be a gift. To be a gift for such
purposes in the present context there must be, among other requirements, a
payment of money or transfer of property without adequate consideration.
As a general rule, where a transaction involving a payment is in the form
of a purchase of an item of value, the presumption arises that no gift has
been made for charitable contribution purposes, the presumption being that
the payment in such case is the purchase price.
Thus, where consideration in the form of admissions or other privileges or
benefits is received in connection with payments by patrons of fund-raising
affairs of the type in question, the presumption is that the payments are
not gifts. In such case, therefore, if a charitable contribution deduction
is claimed with respect to the payment, the burden is on the taxpayer to
establish that the amount paid is not the purchase of the privileges or
benefits and that part of the payment, in fact, does qualify as a gift.
In showing that a gift has been made, an essential element is proof that
the portion of the payment claimed as a gift represents the excess of the
total amount paid over the value of the consideration received therefor.
This may be established by evidence that the payment exceeds the fair
market value of the privileges or other benefits received by the amount
claimed to have been paid as a gift.
Another element which is important in establishing that a gift was made in
such circumstances, is evidence that the payment in excess of the value
received was made with the intention of making a gift. While proof of such
intention may not be an essential requirement under all circumstances and
may sometimes be inferred from surrounding circumstances, the intention to
make a gift is, nevertheless, highly relevant in overcoming doubt in those
cases in which there is a question whether an amount was in fact paid as a
purchase price or as a gift.
Regardless of the intention of the parties, however, a payment of the type
in question can in any event qualify as a deductible gift only to the
extent that it is shown to exceed the fair market value of any
consideration received in the form of privileges or other benefits.
In those cases in which a fund-raising activity is designed to solicit
payments which are intended to be in part a gift and in part the purchase
price of admission to or other participation in an event of the type in
question, the organization conducting the activity should employ procedures
which make clear not only that a gift is being solicited in connection with
the sale of the admissions or other privileges related to the fund-raising
event, but also, the amount of the gift being solicited. To do this, the
amount properly attributable to the purchase of admissions or other
privileges and the amount solicited as a gift should be determined in
advance of solicitation. The respective amounts should be stated in making
the solicitation and clearly indicated on any ticket, receipt, or other
evidence issued in connection with the payment.
In making such a determination, the full fair market value of the admission
and other benefits or privileges must be taken into account. Where the
affair is reasonably comparable to events for which there are established
charges for admission, such as theatrical or athletic performances, the
established charges should be treated as fixing the fair market value of
the admission or privilege. Where the amount paid is the same as the
standard admission charge there is, of course, no deductible contribution,
regardless of the intention of the parties. Where the event has no such
counterpart, only that portion of the payment which exceeds a reasonable
estimate of the fair market value of the admission or other privileges may
be designated as a charitable contribution.
The fact that the full amount or a portion of the payment made by the
taxpayer is used by the organization exclusively for charitable purposes
has no bearing upon the determination to be made as to the value of the
admission or other privileges and the amount qualifying as a contribution.
Also, the mere fact that tickets or other privileges are not utilized does
not entitle the patron to any greater charitable contribution deduction
than would otherwise be allowable. The test of deductibility is not whether
the right to admission or privileges is exercised but whether the right was
accepted or rejected by the taxpayer. If a patron desires to support an
affair, but does not intend to use the tickets or exercise the other
privileges being offered with the event, he can make an outright gift of
the amount he wishes to contribute, in which event he would not accept or
keep any ticket or other evidence of any of the privileges related to the
event connected with the solicitation.
The foregoing summary is not intended to be all inclusive of the legal
requirements relating to deductibility of payments as charitable
contributions for Federal income tax purposes. Neither does it attempt to
deal with many of the refinements and distinctions which sometimes arise in
connection with questions of whether a gift for such purposes has been made
in particular circumstances.
The principles stated are intended instead to summarize with as little
complexity as possible, those basic rules which govern deductibility of
payments in the majority of the circumstances involved. They have their
basis in section 170 of the Code, the regulations thereunder, and in court
decisions. The observance of these provisions will provide greater
assurance to taxpayer contributions that their claimed deductions in such
cases are allowable.
Where it is disclosed that the public or the patrons of a fund-raising
affair for charity have been erroneously informed concerning the extent of
the deductibility of their payments in connection with the affair, it
necessarily follows that all charitable contribution deductions claimed
with respect to payments made in connection with the particular event or
affair will be subject to special scrutiny and may be questioned in audit
of returns.
In the following examples application of the principles discussed above is
illustrated in connection with various types of fund-raising activities for
charity. Again, the examples are drawn to illustrate the general rules
involved without attempting to deal with distinctions that sometimes arise
in special situations. In each instance, the charitable organization
involved is assumed to be an organization previously determined to be
qualified to receive deductible charitable contributions under section 170
of the Code, and the references to deductibility are to deductibility as
charitable contributions for Federal income tax purposes.
Example 1:
The M Charity sponsors a symphony concert for the purpose of raising funds
for M's charitable programs. M agrees to pay a fee which is calculated to
reimburse the symphony for hall rental, musicians' salaries, advertising
costs, and printing of tickets. Under the agreement, M is entitled to all
receipts from ticket sales. M sells tickets to the concert charging $5 for
balcony seats and $10 for orchestra circle seats. These prices approximate
the established admission charges for concert performances by the symphony
orchestra. The tickets to the concert and the advertising material
promoting ticket sales emphasize that the concert is sponsored by, and is
for the benefit of M Charity.
Notwithstanding the fact that taxpayers who acquire tickets to the concert
may think they are making a charitable contribution to or for the benefit
of M Charity, no part of the payments made is deductible as a charitable
contribution for Federal income tax purposes. Since the payments
approximate the established admission charge for similar events, there is
no gift. The result would be the same even if the advertising materials
promoting ticket sales stated that amounts paid for tickets are `tax
deductible' and tickets to the concert were purchased in reliance upon such
statements. Acquisition of tickets or other privileges by a taxpayer in
reliance upon statements made by a charitable organization that the amounts
paid are deductible does not convert an otherwise nondeductible payment
into a deductible charitable contribution.
Example 2:
The facts are the same as in Example 1 , except that the M Charity desires
to use the concert as an occasion for the solicitation of gifts. It
indicates that fact in its advertising material promoting the event, and
fixes the payments solicited in connection with each class of admission at
$30 for orchestra circle seats and $15 for balcony seats. The advertising
and the tickets clearly reflect the fact that the established admission
charges for comparable performances by the symphony orchestra are $10 for
orchestra circle seats and $5 for balcony seats, and that only the excess
of the solicited amounts paid in connection with admission to the concert
over the established prices is a contibution to M .
Under these circumstances a taxpayer who makes a payment of $60 and
receives two orchestra circle seat tickets can show that his payment
exceeds the established admission charge for similar tickets to comparable
performances of the symphony orchestra by $40. The circumstances also
confirm that that amount of the payment was solicited as, and intended to
be, a gift to M Charity. The $40, therefore, is deductible as a charitable
contribution.
Example 3:
A taxpayer pays $5 for a balcony ticket to the concert described in Example
1 . This taxpayer had no intention of using the ticket when he acquired it
and he did not, in fact, attend the concert.
No part of the taxpayer's $5 payment to the M Charity is deductible as a
charitable contribution. The mere fact that the ticket to the concert was
not used does not entitle the taxpayer to any greater right to a deduction
than if he did use it. The same result would follow if the taxpayer had
made a gift of the ticket to another individual. If the taxpayer desired to
support M , but did not intend to use the ticket to the concert, he could
have made a qualifying charitable contribution by making a $5 payment to M
and refusing to accept the ticket to the concert.
Example 4:
A receives a brochure soliciting contributions for the support of the M
Charity. The brochure states: `As a grateful token of appreciation for your
help, the M Charity will send to you your choice of one of the several
articles listed below, depending upon the amount of your donation.' The
remainder of the brochure is devoted to a catalog-type listing of articles
of merchandise with the suggested amount of donation necessary to receive
each particular article. There is no evidence of any significant difference
between the suggested donation and the fair market value of any such
article. The brochure contains the further notation that all donations to M
Charity are tax deductible.
Payments of the suggested amounts solicited by M Charity are not deductible
as a charitable contribution. Under the circumstances, the amounts
solicited as `donations' are simply the purchases prices of the articles
listed in the brochure.
Example 5:
A taxpayer paid $5 for a ticket which entitled him to a chance to win a new
automobile. The raffle was conducted to raise funds for the X Charity.
Although the payment for the ticket was solicited as a `contribution' to
the X Charity and designated as such of the face of the ticket, no part of
the payment is deductible as a charitable contribution. Amounts paid for
chances to participate in raffles, lotteries, or similar drawings or to
participate in puzzle or other contests for valuable prizes are not gifts
in such circumstances, and therefore, do not qualify as deductible
charitable contributions.
Example 6:
A women's club, which serves principally as an auxiliary of the X Charity,
holds monthly membership luncheon meetings. Following the luncheon and
entertainment that may have been arranged, the members transact any
membership business which may be required. Attendance of the luncheon
meetings is promoted through the advance sale of tickets. Typical of the
form of the tickets is the following:
Suburban Women's Club of X County
LUNCHEON--ENTERTAINMENT
Benefit of
The Handicapped Childrens Fund
NO. NO.
of
99 99
X Charity
Readings by GASTON
Noted Lecturer and Author
THE Z COUNTRY CLUB
Tuesday, October 31, 1967
12:00 Noon $5.50 Donation
While the ticket does not specifically state that the amount is tax
deductible, the characterization of the $5.50 price of the ticket as a
`donation' is highly misleading in that it is done in a context which
suggests that the price of the ticket is a charitable contribution and,
therefore, tax deductible. On the facts recited, no part of the payment is
deductible, since there is no showing that any part of the price of the
ticket is in fact a gift of an amount in excess of the fair market value of
the luncheon and entertainment.
Example 7:
In support of its summer festival program of 10 free public concerts, the M
Symphony, a charitable organization, mails out brochures soliciting
contributions from its patrons. The brochure recites the purposes and
activities of the organization, and as an inducement to contributors states
that:
`A contribution of $20 entitles the donor to festival membership for the
season and free admission to the premiere showing of the motion picture * *
* starring * * * and * * *
Cocktails-7:00 P.M.
Curtain-8:15 P.M.
This special premiere performance is not open to the public.
*
`Your contribution will benefit an important community function; it also
entitles you to choice reserved seats for all summer festival concerts and
events.'
The envelope furnished for mailing in payments contains the following:
`Enclosed is my tax-deductible membership contribution to the M Symphony
summer concert program in the amount of $ _ _ .
`__ Send me ___ tickets to to May 1 premiere performance.
`__ I do not desire to attend the special premiere performance for festival
members, but I am enclosing my contribution.'
A taxpayer mails in a payment of $20, indicating on the envelope form that
he desires a ticket to the premiere showing of the film.
No part of the payment is deductible as a charitable contribution. Payment
of the $20 entitles an individual not only to the privilege of attending
the cocktail party and the premiere showing of the film, but also the
privilege of choice reserved seats for the summer festival concerts. Under
the circumstances, no part of the payment qualifies as a gift, since there
is no showing that the payment exceeds the fair market value of the
privileges involved. Even if a `contributor' indicates he does not desire
to attend the cocktail party and premiere showing of the film, it would
still be incorrect for the organization to characterize the $20 payment as
a deductible charitable contribution, since under these circumstances the
fair market value of the privilege of having choice reserved seats for
attending the concerts would, in all likelihood, exceed the amount of the
payment. However, if the taxpayer wishes to support the M Symphony, and
advises the organization that he does not desire the ticket to the premiere
and does not want seats reserved for him, the amount contributed to M is
deductible as a charitable contribution.
Example 8:
In order to raise funds, W Charity plans a theater party consisting of
admission to a premiere showing of a motion picture and an after-theater
buffet. The advertising material and tickets to the theater party designate
$5 as an admission charge and $10 as a gift to W Charity. The established
admission charge for premiere showings of motion pictures in the locality
is $5.
Notwithstanding W's representations respecting the amount designated as a
gift, the specified $10 does not qualify as a deductible charitable
contribution because W's allocation fails to take into account the value of
admission to the buffet dinner.
Example 9:
The X Charity sponsors of fund-raising bazaar, the articles offered for
sale at the bazaar having been contributed to X by persons desiring to
support X's charitable programs. The prices for the articles sold at the
bazaar are set by a committee of X with a view to charging the full fair
market value of the articles.
A taxpayer who purchases articles at the bazaar is not entitled to a
charitable contribution deduction for any portion of the amount paid to X
for such articles. This is true even though the articles sold at the bazaar
are acquired and sold without cost to X and the total proceeds of the sale
of the articles are used by X exclusively for charitable purposes.
Example 10:
The members of the M Charity undertake a program of selling Christmas cards
to raise funds for the organization's activities. The cards are purchased
at wholesale prices and are resold at prices comparable to the prices at
which similar cards are sold by regular retail outlets. On the receipts
funished to its customers, the difference between the amount received from
the customer and the wholesale cost of the cards to the organization is
designated by the organization as a tax-deductible charitable contribution.
The organization is in error in designating this difference as a
tax-deductible charitable contribution. The amount paid by customers in
excess of the wholesale cost of the cards to the organization is not a gift
to the organization, but instead is part of the purchase price or the fair
market value of the cards at the retail level.
Example 11:
In support of the annual fund-raising drive of the X Charity, a local
department store agrees to award a transistor radio to each person who
contributes $50 or more to the charity. The retail value of the radio is
$15. B receives one of the transistor radios as a result of his
contribution of $100 to X . Only $85 of B's payment to X qualfies as a
deductible charitable contribution. In determining the portion of the
payment to a charitable organization which is deductible as a charitable
contribution in these circumstances, the fair market value of any
consideration received for the payment from any source must be subtracted
from the total payment.
Example 12:
To assist the Y Charity in the promotion of a Halloween Ball to raise funds
for Y's activities, several individuals in the community agree to pay the
entire costs of the event, including the costs of the orchestra, publicity,
rental of the ballroom, refreshments, and any other necessary expenses.
Various civic organizations and clubs agree to undertake the sale of
tickets for the dance. The publicity and solicitations for the sale of the
tickets emphasize the fact that the entire cost of the ball is being borne
by anonymous patrons of Y and by the other community groups, and that the
entire gross receipts from the sale of the tickets, therefore, will go to Y
Charity. The price of the tickets, however, is set at the fair market value
of admission of the event.
No part of the amount paid for admission to the dance is a gift. Therefore,
no part is deductible as a charitable contribution. The fact that the event
is conducted entirely without cost to Y Charity and that the full amount of
the admission charge goes directly to Y for its uses has no bearing on the
deductibility of the amounts paid for admission, bur does have a bearing on
the deductibility of the amounts paid by the anonymous patrons of the
event. The test is not the cost of the event to Y , but the fair market
value of the consideration received by the purchaser of the ticket or other
privileges for his payment.
