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 ...

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