Tax Planning and Compliance for Tax-Exempt Organizations, Fifth Edition 2019 Cumulative Supplement, 5th Edition

CHAPTER 24Deductibility and Disclosures

1. § 24.1 Overview of Deductibility
   1. (a) Contribution Defined
   2. (c) Business “Donations”
2. § 24.2 Substantiation and Quid Pro Quo Rules
   1. *(b) Substantiation Rules

§ 24.1 Overview of Deductibility

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Crowdfunding, the amazing Internet‐based method of raising funds, is predicted to bring in more than $90 billion annually by 2020.¹ The tax consequences to the recipients of the funds and “donors” to the fund depend on several factors that may be unclear. The following issues must be considered:

• Nature of sponsor,
• Nature of beneficiary,
• Character of transaction to donor,
• Consequence of revenue on public support test of donee, and
• Potential gift tax liability for donor.

The first priority is to determine whether the funding campaign is being conducted by a charitable organization eligible to receive donations that qualify for income tax deductions.² If so, the charity should display adequate disclosure of its § 501(c)(3) status and send acknowledgments to provide the donors documentation for income tax purposes. Conversely, a campaign may be set up by an individual or a noncharitable organization. Again the nature of the entity sponsoring the campaign should be displayed. Is the beneficiary of the campaign a victim of a crime, like someone whose house was robbed, or one suffering from cancer or another disease that is expensive to treat, or a parent needing money to send a child to college? Do they receive taxable ...