In 2015 your organization may consider partnering with a local business to raise money. When donors give money to a business that is soliciting on behalf of a charity, is it a legitimate, tax-deductible charitable donation?
A donation may be tax deductible if it is paid to a charitable organization’s agent. In addition to accepting donations on behalf of the organization, the agent can provide donors with contemporaneous written acknowledgments of their donations (which donors will need to substantiate their income-tax deceptions).
Who or What is an Agent?
The IRS issued a private letter ruling in 2002 that addressed issues raised by a vehicle donation program involving a charity and a company that handled the donated vehicles. The letter ruling confirmed there was a valid agency relationship between the charity and the company handling the donations, based in part on the following:
- The agreement between the charity and the company established an agency relationship that was valid under applicable state law
- The company was subject to the charity’s control, specifically in soliciting and accepting vehicles
- The charity owned the vehicles and bore the risk of loss, damage, or destruction until the vehicles were sold
Charity in Control
Key takeaways are that an agency agreement must be valid under all the facts and circumstances and that the charity’s degree of control and supervision is critical to this determination. For example, charities should have the right to inspect their agent’s financial statements regarding the donation program.
Can We Help?
Our firm offers a broad range of audit, tax information, return preparation, and executive board consulting services to nonprofit organizations. If we can be of service to you, please call.
For more information, please contact Michael Lyon or Tanvi Sinha.