A gift is a transfer that (1) is voluntary, and (2) is motivated by a "detached and disinterested generosity." Commissioner v. Duberstein, 363 U.S. 278, 285 (1960). "Where consideration in the form of substantial privileges or benefits is received in connection with payments by patrons of fund-raising activities, there is a presumption that the payments are not gifts." Rev. Rul. 86-63.
A "payment of money generally cannot constitute a charitable contribution if the contributor expects a substantial benefit in return." United States v. American Bar Endowment, 477 U.S. 105, 116-17 (1986). Generally, where some benefit is received in return, "[t]he taxpayer … must at a minimum demonstrate that he purposefully contributed money or property in excess of the value of any benefit he received in return." Id. at 118. Reg. Sec. 1.170A-1(h) provides that no portion of the payment in consideration for goods or services is a contribution or gift unless the taxpayer can prove that he or she (i) intends to make a payment in an amount that exceeds the fair market value ("FMV") of the goods or services, and (ii) actually makes such a payment. Where the benefit to the donor is incidental, it will not defeat the charitable deduction.
Charitable Contribution Deduction – Background
The charitable contribution deduction for a gift of money is based on the amount of money transferred. The calculation for the charitable contribution deduction for a gift of property is more complex and depends on several factors, including:
- the FMV of the property;
- the nature of the property contributed and the appreciation element (long-term capital gain, short-term capital gain, ordinary income);
- the tax classification of the donee (public charity, private foundation, governmental body, other exempt organization);
- the use of the property by the donee (related to the donee’s exempt purpose or not);
- percentage limitations; and
- compliance with substantiation rules.