[Federal Register Volume 60, Number 150 (Friday, August 4, 1995)]
[Proposed Rules]
[Pages 39896-39902]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-19063]



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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[IA-44-94]
RIN 1545-AS94


Deductibility, Substantiation, and Disclosure of Certain 
Charitable Contributions

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Notice of proposed rulemaking and notice of public hearing.

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SUMMARY: This document contains proposed regulations that provide 
guidance regarding the allowance of certain charitable contribution 
deductions, the substantiation requirements for charitable 
contributions of $250 or more, and the disclosure requirements for quid 
pro quo contributions in excess of $75. The proposed regulations will 
affect organizations described in section 170(c) and individuals and 
entities that make payments to those organizations.

DATES: Written comments must be received by November 2, 1995. Requests 
to appear and outlines of oral comments to be presented at the public 
hearing scheduled for November 1, 1995, must be received by October 11, 
1995.

ADDRESSES: Send submissions to: CC:DOM:CORP:T:R(IA-44-94), Room 5228, 
Internal Revenue Service, POB 7604, Ben Franklin Station, Washington, 
D.C. 20044. In the alternative, submissions may be hand delivered 
between the hours of 8 a.m. and 5 p.m. to: CC:DOM:CORP:T:R(IA-44-94), 
Courier's Desk, Internal Revenue Service, 1111 Constitution Avenue, 
N.W., Washington, D.C. The Public Hearing scheduled for November 1, 
1995 at 10:00 a.m., will be held in the IRS Auditorium, 7th floor, 1111 
Constitution Avenue, N.W., Washington, D.C.

FOR FURTHER INFORMATION CONTACT: Concerning the regulations, Jefferson 
K. Fox, 202-622-4930; concerning submissions and the hearing, Christina 
Vasquez, 202-622-6803. These are not toll-free numbers.

SUPPLEMENTARY INFORMATION:

Paperwork Reduction Act

    The collections of information contained in this notice of proposed 
rulemaking have been submitted to the Office of Management and Budget 
for review in accordance with the Paperwork Reduction Act (44 U.S.C. 
3504(h)). Comments on the collections of information should be sent to 
the Office of Management and Budget, Attn: Desk Officer for the 
Department of the Treasury, Office of Information and Regulatory 
Affairs, Washington, D.C. 20503, with copies to the Internal Revenue 
Service, Attn: IRS Reports Clearance Officer, PC:FP, Washington, DC 
20224.
    The collections of information are in Secs. 1.170A-13(f)(1), 
(f)(10), (f)(14), and 1.6115-1. This information is required by the IRS 
to determine the deductibility of certain charitable contributions. The 
likely respondents are individuals or households, business or other 
for-profit institutions, nonprofit institutions, and small businesses 
or organizations.

    Estimated total annual recordkeeping burden: 100,000 hours.
    Estimated average annual burden per recordkeeper: .10 hour.
    Estimated number of recordkeepers: 1,000,000.
    Estimated total annual reporting burden: 1,875,000 hours.
    Estimated average burden per respondent: 2.5 hours.
    Estimated number of respondents: 750,000.
    Estimated frequency of responses: On occasion.

Background

    This document contains proposed amendments to the Income Tax 
Regulations (26 CFR part 1) that provide guidance under sections 
170(a), 170(f)(8), and 6115 of the Internal Revenue Code of 1986.
    Sections 170(f)(8) and 6115 were added to the Code by sections 
13172 and 13173 of the Omnibus Budget Reconciliation Act of 1993, Pub. 
L. No. 103-66, 107 Stat. 455, 1993-3 C.B. 43. Temporary regulations (TD 
8544) and a notice of proposed rulemaking by cross-reference to 
temporary regulations under section 170(f)(8) were published in the 
Federal Register for May 27, 1994 (52 FR 27458, 27515). The temporary 
and proposed regulations primarily address contributions made by 
payroll deduction and a donor's receipt of goods or services with 
insubstantial value. A public hearing was held on November 10, 1994. On 
March 22, 1995, the Service released Notice 95-15, which was published 
in 1995-15 I.R.B., dated April 10, 1995. Notice 95-15 provides 
transitional relief (for 1994) from the substantiation requirement.
Explanation of Statutory Provisions

    Section 170(a) allows a deduction for certain charitable 
contributions to or for the use of an organization described in section 
170(c). Under section 170(f)(8), 

[[Page 39897]]
taxpayers who claim a deduction for a charitable contribution of $250 
or more are responsible for obtaining from the donee organization, and 
maintaining in their records, substantiation of that contribution. See 
H.R. Conf. Rep. 2264, 103d Cong., 1st Sess. 565 (1993). Specifically, 
section 170(f)(8) provides that no charitable contribution deduction 
will be allowed under section 170(a) for a contribution of $250 or more 
unless the taxpayer substantiates the contribution with a 
contemporaneous written acknowledgment from the donee organization.
    Section 170(f)(8)(B) provides that an acknowledgment meets the 
requirements of that section if it includes the following information: 
(1) the amount of cash paid and a description (but not necessarily the 
value) of any property other than cash transferred to a donee 
organization; (2) whether or not the donee organization provided any 
goods or services in consideration for the cash or property; and (3) a 
description and good faith estimate of the value of any goods or 
services provided by the donee organization in consideration for the 
cash or property. A written acknowledgment is contemporaneous, within 
the meaning of section 170(f)(8)(C), if it is obtained on or before the 
earlier of: (1) the date the taxpayer files its original return for the 
taxable year in which the contribution was made, or (2) the due date 
(including extensions) for filing the taxpayer's original return for 
that year.
    Section 170(f)(8) does not prescribe a format for the written 
acknowledgment. Any document that contains the required information, 
including but not limited to a letter, postcard, computer-generated 
form, or tax form, is an acceptable means of providing a taxpayer with 
a written acknowledgment. For example, a private foundation may use a 
copy of its Form 990-PF, Return of Private Foundation, as a written 
acknowledgment for a taxpayer's charitable contribution of $250 or more 
if it contains the necessary information. Any documents that are used 
as a written acknowledgment of a taxpayer's charitable contribution 
must be contemporaneous within the meaning of section 170(f)(8)(C).
    Section 6115 generally requires an organization described in 
section 170(c) that receives a ``quid pro quo contribution'' in excess 
of $75 to provide a written disclosure statement to the donor. The 
written disclosure statement must contain the following information: 
(1) a statement that the deductibility of the donor's contribution is 
limited to the excess of the amount of any money or the value of any 
property contributed by the donor over the value of the goods or 
services provided to the donor by the organization, and (2) a good 
faith estimate of the value of the goods or services provided by the 
organization. Section 6115(b) defines a quid pro quo contribution as a 
payment made partly as a contribution and partly in consideration for 
goods or services provided by the organization.

Explanation of Regulatory Provisions

Deductibility of a Payment in Exchange for Consideration

    In United States v. American Bar Endowment, 477 U.S. 105 (1986), 
the Supreme Court set forth a two-part test for determining whether a 
payment that is partly in consideration for goods or services is 
deductible under section 170(a). First, a payment to an organization 
described in section 170(c) is deductible only if, and to the extent 
that, the payment exceeds the fair market value of the benefits 
received. Second, the excess payment must be made with the intent to 
make a charitable contribution. See also Rev. Rul. 67-246, 1967-2 C.B. 
104.
    The proposed regulations adopt this two-part test for determining 
whether a payment is deductible under section 170(a). Specifically, the 
regulations provide that, in order for a charitable contribution 
deduction to be allowed, a taxpayer must intend to make a payment in an 
amount that exceeds the fair market value of the goods or services 
received in return, and must actually make a payment in an amount that 
exceeds that fair market value.

Certain Goods or Services Disregarded

    Under current law, a taxpayer who receives membership benefits in 
return for a payment to an organization described in section 170(c) may 
not claim a charitable contribution deduction for more than the amount 
by which the payment exceeds the fair market value of the membership 
benefits. United States v. American Bar Endowment, 477 U.S. 105 (1986). 
See also Rev. Rul. 68-432, 1968-2 C.B. 104; Rev. Rul. 67-246, 1967-2 
C.B. 104. Accordingly, taxpayers and donee organizations must determine 
the fair market value of any membership benefits the donee organization 
provides to its donors.
    It is often difficult to value membership benefits, especially 
rights or privileges that are not limited as to use, such as free or 
discounted admission or parking, and gift shop discounts. In the course 
of preparing these proposed regulations, the IRS and the Treasury 
Department have considered the extent of the difficulty of valuation 
and have concluded that it is appropriate to provide limited relief 
with respect to certain types of customary membership benefits while 
preserving the IRS's ability to administer the law fairly and 
consistently. Accordingly, the proposed regulations provide that both 
the donee organization and the donor may disregard certain membership 
benefits when they are provided in return for a payment to the 
organization.
    Section 1.170A-13T(a) already allows donors and donee organizations 
to disregard goods or services that are treated as having insubstantial 
value under existing IRS guidelines. See Rev. Proc. 90-12, 1990-1 C.B. 
471, and Rev. Proc. 92-49, 1992-1 C.B. 987. The guidelines cover low 
cost articles (items costing $6.60 or less for 1995), newsletters that 
are not commercial quality publications, and benefits worth 2% or less 
of a payment, up to a maximum of $66 for 1995. The substance of this 
section has been incorporated into section 1.170A-13(f)(8)(i).
    Under the proposed regulations, other benefits may be disregarded 
only if they are given as part of an annual membership offered in 
return for a payment of $75 or less and fall into one of two 
categories. The first category is admission to events that are open 
only to members and for which the donee organization reasonably 
projects that the cost per person (excluding allocable overhead) for 
each event will be less than or equal to the standard for low cost 
articles under section 513(h)(2)(C) ($6.60 for 1995). An example is a 
modest reception where light refreshments are served to members of a 
donee organization before an event. The second category is rights or 
privileges that members can exercise frequently during the membership 
period. An example is free admission to a museum.
    The items described in the previous two paragraphs may be 
disregarded for purposes of determining whether the taxpayer has made a 
charitable contribution, the amount of any charitable contribution that 
has been made, and whether any goods or services have been provided 
that must be substantiated under section 170(f)(8) or disclosed under 
section 6115. Thus, the effect of these provisions is broader than that 
of the temporary regulations, which provided less comprehensive relief 
and then only for items of insubstantial value. 

[[Page 39898]]


Goods or Services Provided to Donor's Employees

    The proposed regulations also contain relief where donee 
organizations provide goods or services to the employees of their 
donors. Goods or services that may be disregarded for the purposes 
specified above when provided directly to a donor may also be 
disregarded for the same purposes when provided to a donor's employees.
    Any other goods or services provided to the donor's employees must 
be taken into account for purposes of calculating any charitable 
contribution the donor claims as a deduction. If a contemporaneous 
written acknowledgment of the donor's contribution is required under 
section 170(f)(8), it must include a description of these goods or 
services. However, the proposed regulations provide that the 
contemporaneous written acknowledgment may omit the otherwise required 
good faith estimate of the value of these goods or services; similarly, 
the proposed regulations provide that a written disclosure statement 
required by section 6115 for a payment made in exchange for these goods 
or services may include a description of them in lieu of the otherwise 
required good faith estimate of their value.

Good Faith Estimate

    For purposes of sections 170 and 6115, the proposed regulations 
define a good faith estimate of the value of goods or services provided 
by an organization described in section 170(c) as an estimate of the 
fair market value of those goods or services. The fair market value of 
goods or services may differ from their cost to the donee organization. 
The organization may use any reasonable methodology that it applies in 
good faith in making the good faith estimate. However, a taxpayer is 
not required to determine how the donee organization made the estimate.
    The proposed regulations further provide that a donee organization 
may make a good faith estimate of the value of goods or services that 
are not available in a commercial transaction by reference to the fair 
market value of similar or comparable goods or services. Goods or 
services may be similar or comparable even though they do not have the 
unique qualities of the goods or services that are being valued.

Reliance on Donee Estimates

    The proposed regulations provide that a taxpayer generally may 
treat an estimate of the value of goods or services as the fair market 
value for purposes of section 170(a) if the estimate is in a 
contemporaneous written acknowledgment (as required by section 
170(f)(8)) or a written disclosure statement (as required by section 
6115). Thus, a taxpayer that makes a payment to an organization 
described in section 170(c) and receives an item in return generally 
may rely on the organization's estimate of the value of the item in 
calculating its charitable contribution deduction if the estimate is 
included in a contemporaneous written acknowledgment or a written 
disclosure statement.
    However, a taxpayer may not treat an estimate as the fair market 
value of the goods or services if the taxpayer knows, or has reason to 
know, that such treatment is unreasonable. For example, if the taxpayer 
is a dealer in the type of goods or services it receives from an 
organization described in section 170(c), or if the goods or services 
are readily valued, it is unreasonable for the taxpayer to treat the 
donee organization's estimate as the fair market value of the goods or 
services if that estimate is in error and the taxpayer knows, or has 
reason to know, the fair market value of the goods or services.
    An estimate of the value of goods or services in a contemporaneous 
written acknowledgment or written disclosure statement is not in error 
if the estimate is within the typical range of retail prices for the 
goods or services. For example, if an organization provides a book in 
exchange for a $100 payment, and the book is sold at retail prices 
ranging from $18 to $25, the taxpayer may rely on any estimate of the 
organization that is within the $18 to $25 range.

Substantiation of Contributions to a Split Interest Trust

    Section 170(f)(8)(E) provides the Secretary with authority to issue 
regulations that relieve taxpayers, in appropriate cases, from some or 
all of the requirements of section 170(f)(8).
    The grantor of a charitable lead trust, a charitable remainder 
annuity trust, or a charitable remainder unitrust is not required to 
designate a specific organization as the charitable beneficiary at the 
time the grantor transfers property to the trust. As a result, there is 
often no designated donee organization available to provide a 
contemporaneous written acknowledgment to a taxpayer. In addition, even 
if a specific beneficiary is designated, the designation is often 
revocable. In contrast, a pooled income fund is created and maintained 
by one charitable organization to which the remainder interest is 
contributed.
    The IRS and the Treasury Department believe that for these reasons 
it is appropriate to exempt from the requirements of section 170(f)(8) 
transfers of property to charitable lead trusts, charitable remainder 
annuity trusts, or charitable remainder unitrusts while not exempting 
transfers to pooled income funds.

Substantiation of Out-of-Pocket Expenses

    Section 1.170A-1(g) provides that an unreimbursed expenditure made 
incident to the rendition of services to a donee organization may be a 
deductible charitable contribution. Some taxpayers may make individual 
unreimbursed expenditures of $250 or more (such as for a plane ticket) 
that will require substantiation under section 170(f)(8). The IRS and 
the Treasury Department recognize that a donee organization typically 
has no knowledge of the amount of out-of-pocket expenditures incurred 
by a taxpayer, and therefore, would have difficulty providing taxpayers 
with substantiation of unreimbursed expenditures.
    To address this concern, the proposed regulations provide that 
where a taxpayer has individual unreimbursed expenditures made incident 
to the rendition of services and of an amount requiring substantiation, 
the expenditures may be substantiated by the donor's normal records 
(see Sec. 1.170A-13(a)) and an abbreviated written acknowledgment 
provided by the donee organization. This written acknowledgment from 
the donee organization must contain a description of the services 
provided by the donor, the date the services were provided, whether or 
not the donee organization provided any goods or services in return 
and, if the donee organization provided any goods or services, a 
description and good faith estimate of the fair market value of those 
goods or services. This written acknowledgment must be obtained by the 
taxpayer on or before the earlier of the date the taxpayer files its 
original return for the taxable year in which the contribution was 
made, or the due date (including extensions) for filing the taxpayer's 
original return for that year.

Contributions Made by a Partnership or an S Corporation

    The proposed regulations provide that if a partnership or an S 
corporation makes a charitable contribution of $250 or more, the 
partnership or S corporation will be treated as the taxpayer for 
purposes of section 170(f)(8). Therefore, the partnership or S 

[[Page 39899]]
corporation is required to obtain a contemporaneous written 
acknowledgment for each charitable contribution of $250 or more that it 
reports on its income tax return (regardless of whether any partner's 
or shareholder's distributive share of the contribution is less than 
$250). Because the partnership or S corporation must satisfy the 
requirements of section 170(f)(8) in order to list charitable 
contributions of $250 or more on the schedules provided to its partners 
or shareholders, the partners and shareholders are not required to 
obtain any additional contemporaneous written acknowledgments before 
taking a deduction for their allocable shares of the partnership's or S 
corporation's charitable contribution.

Contributions Made by Payroll Deduction

    These proposed regulations reserve two paragraphs so that the 
balance of the temporary and proposed regulations published in the 
Federal Register for May 27, 1994, may be incorporated into 
Sec. 1.170A-13(f) upon finalization.

Proposed Effective Date

    These regulations are proposed to be effective on the date they are 
published in the Federal Register as final regulations. Taxpayers may, 
however, rely on the proposed regulations for contributions made on or 
after January 1, 1994.

Special Analyses

    It has been determined that this notice of proposed rulemaking is 
not a significant regulatory action as defined in EO 12866. Therefore, 
a regulatory assessment is not required. It has also been determined 
that section 553(b) of the Administrative Procedure Act (5 U.S.C. 
chapter 5) and the Regulatory Flexibility Act (5 U.S.C. chapter 6) do 
not apply to these regulations and, therefore, a Regulatory Flexibility 
Analysis is not required. Pursuant to section 7805(f) of the Internal 
Revenue Code, this notice of proposed rulemaking will be submitted to 
the Chief Counsel for Advocacy of the Small Business Administration for 
comment on its impact on small businesses.

Comments and Public Hearing

    Before the proposed regulations are adopted as final regulations, 
consideration will be given to any written comments (a signed original 
and eight copies) that are submitted timely to the IRS. All comments 
will be available for public inspection and copying.
    A public hearing has been scheduled for November 1, 1995, at 10:00 
a.m. in the IRS Auditorium, 7th floor, 1111 Constitution Avenue, N.W., 
Washington, D.C. Because of access restrictions, visitors will not be 
admitted beyond the Internal Revenue Building lobby more than 15 
minutes before the hearing is scheduled to begin.
    The rules of 26 CFR 601.601(a)(3) apply to the hearing.
    Persons who wish to present oral comments at the hearing must 
submit written comments by November 2, 1995 and submit an outline (a 
signed original and eight copies) of the topics to be discussed and the 
time to be devoted to each topic by October 11, 1995.
    A period of 10 minutes will be allotted to each person for making 
comments.
    An agenda showing the scheduling of the speakers will be prepared 
after the deadline for receiving outlines has passed. Copies of the 
agenda will be available free of charge at the hearing.

Drafting Information

    The principal author of these regulations is Rosemary DeLeone, 
Office of the Assistant Chief Counsel (Income Tax and Accounting), 
Internal Revenue Service. However, other personnel from the IRS and the 
Treasury Department participated in their development.
List of Subjects in 26 CFR Part 1

    Income taxes, Reporting and recordkeeping requirements.

Proposed Amendments to the Regulations

    Accordingly, 26 CFR part 1 is proposed to be amended as follows:

PART 1--INCOME TAXES

    Paragraph 1. The authority citation for part 1 is amended by adding 
a new entry for section 1.170A-1 and revising the entry for section 
1.170A-13 to read as follows:

    Authority: 26 U.S.C. 7805. Section 1.170A-1 also issued under 26 
U.S.C. 170(a). Section 1.170A-13 also issued under 26 U.S.C. 
170(f)(8). * * *

    Par. 2. Section 1.170A-1 is amended as follows:
    1. Paragraph (h) is redesignated as paragraph (j).
    2. Paragraph (i) is redesignated as paragraph (k) and is revised.
    3. Paragraph (h) is added.
    4. Paragraph (i) is added and reserved.
    The additions and revisions read as follows:


Sec. 1.170A-1  Charitable, etc., contributions and gifts; allowance of 
deduction.

* * * * *
    (h) Payment in exchange for consideration--(1) Burden on taxpayer 
to show that all or part of payment is a charitable contribution or 
gift. No part of a payment that a taxpayer makes to or for the use of 
an organization described in section 170(c) that is in consideration 
for goods or services (as defined in Sec. 1.170A-13(f)(5)) is a 
contribution or gift within the meaning of section 170(c) unless the 
taxpayer--
    (i) Intends to make a payment in an amount that exceeds the fair 
market value of the goods or services; and
    (ii) Makes a payment in an amount that exceeds the fair market 
value of the goods or services.
    (2) Limitation on amount deductible--(i) In general. The charitable 
contribution deduction under section 170(a) for a payment a taxpayer 
makes partly in consideration for goods or services may not exceed the 
excess of--
    (A) The amount of any cash paid and the fair market value of any 
property (other than cash) transferred by the taxpayer to an 
organization described in section 170(c); over
    (B) The fair market value of the goods or services the organization 
provides in return.
    (ii) Special rules. For special limits on the deduction for 
charitable contributions of ordinary income and capital gain property, 
see section 170(e) and Secs. 1.170A-4 and 1.170A-4A.
    (3) Certain goods or services disregarded. For purposes of section 
170(a) and paragraphs (h)(1) and (h)(2) of this section, goods or 
services described in Sec. 1.170A-13(f)(8)(i) or Sec. 1.170A- 
13(f)(9)(i) are disregarded.
    (4) Donee estimates of the value of goods or services may be 
treated as fair market value--(i) In general. For purposes of section 
170(a), a taxpayer may rely on either a contemporaneous written 
acknowledgment provided under section 170(f)(8) and Sec. 1.170A-13(f) 
or a written disclosure statement provided under section 6115 for the 
fair market value of any goods or services provided to the taxpayer by 
the donee organization.
    (ii) Exception. A taxpayer may not treat an estimate of the value 
of goods or services as their fair market value if the taxpayer knows, 
or has reason to know, that such treatment is unreasonable. For 
example, if the taxpayer knows, or has reason to know, that there is an 
error in an estimate provided by an organization described in section 
170(c) pertaining to goods or services that have a readily 
ascertainable value, it is unreasonable for the taxpayer to treat the 
estimate as the fair market value of the goods or services. Similarly, 
if the taxpayer is a 

[[Page 39900]]
dealer in the type of goods or services provided in consideration for 
its payment and knows, or has reason to know, that the estimate is in 
error, it is unreasonable for the taxpayer to treat the estimate as the 
fair market value of the goods or services.
    (5) Examples. The following examples illustrate the rules of this 
paragraph (h).

    Example 1. Certain goods or services disregarded. Taxpayer makes 
a $50 payment to Charity B, an organization described in section 
170(c), in exchange for a family membership. The family membership 
entitles Taxpayer and members of Taxpayer's family to certain 
benefits. These benefits include free admission to weekly poetry 
readings, discounts on merchandise sold by B in its gift shop or by 
mail order, and invitations to special events for members only, such 
as lectures or informal receptions. When B first offers its 
membership package for the year, B reasonably projects that each 
special event for members will have a cost to B, excluding any 
allocable overhead, of $5 or less per person. Because the family 
membership benefits are disregarded pursuant to Sec. 1.170A-
13(f)(8)(i), Taxpayer may treat the $50 payment as a contribution or 
gift within the meaning of section 170(c), regardless of Taxpayer's 
intent and whether or not the payment exceeds the fair market value 
of the goods or services. Furthermore, any charitable contribution 
deduction available to Taxpayer may be calculated without regard to 
the membership benefits.
    Example 2. Treatment of good faith estimate at auction as the 
fair market value. Taxpayer attends an auction held by Charity C, an 
organization described in section 170(c). Prior to the auction, C 
publishes a catalog that meets the requirements for a written 
disclosure statement under section 6115(a) (including C's good faith 
estimate of the value of items that will be available for bidding). 
A representative of C gives a copy of the catalog to each individual 
(including Taxpayer) who attends the auction. Taxpayer notes that in 
the catalog C's estimate of the value of a vase is $100. Taxpayer 
has no reason to doubt the accuracy of this estimate. Taxpayer 
successfully bids and pays $500 for the vase. Because Taxpayer knew, 
prior to making her payment, that the estimate in the catalog was 
less than the amount of her payment, Taxpayer satisfies the 
requirement of paragraph (h)(1)(i) of this section. Because Taxpayer 
makes a payment in an amount that exceeds that estimate, Taxpayer 
satisfies the requirements of paragraph (h)(1)(ii) of this section. 
Taxpayer may treat C's estimate of the value of the vase as its fair 
market value in determining the amount of her charitable 
contribution deduction.
    Example 3. Good faith estimate not in error. Taxpayer makes a 
$200 payment to Charity D, an organization described in section 
170(c). In return for Taxpayer's payment, D gives Taxpayer a book 
that Taxpayer could buy at retail prices typically ranging from $18 
to $25. D provides Taxpayer with a good faith estimate, in a written 
disclosure statement under section 6115(a), of $20 for the value of 
the book. Because the estimate is within the range of typical retail 
prices for the book, the estimate contained in the written 
disclosure statement is not in error. Although Taxpayer knows that 
the book is sold for as much as $25, Taxpayer may treat the estimate 
of $20 as the fair market value of the book in determining the 
amount of his charitable contribution deduction.

    (i) [Reserved]
* * * * *
    (k) Effective date. In general this section applies to 
contributions made in taxable years beginning after December 31, 1969. 
Paragraph (j)(11) of this section, however, applies only to out-of-
pocket expenditures made in taxable years beginning after December 31, 
1976. In addition, paragraph (h) of this section applies only to 
payments made on or after the date these regulations are published in 
the Federal Register as final regulations. However, taxpayers may rely 
on the rules of paragraph (h) of this section for payments made on or 
after January 1, 1994.
    Par. 3. Section 1.170A-13 is amended as follows:
    1. Paragraph (e) is added and reserved.
    2. Paragraph (f) is added.
    The additions read as follows:


Sec. 1.170A-13  Recordkeeping and return requirements for deductions 
for charitable contributions.

* * * * *
    (e) [Reserved]
    (f) Substantiation of charitable contributions of $250 or more--(1) 
In general. No deduction is allowed under section 170(a) for all or 
part of any contribution of $250 or more unless the taxpayer 
substantiates the contribution with a contemporaneous written 
acknowledgment from a donee organization. Section 170(f)(8) does not 
apply to a payment of $250 or more if the amount contributed (as 
determined under Sec. 1.170A-1(h)) is less than $250.
    (2) Written acknowledgment. Except as otherwise provided in 
paragraphs (f)(8) and (f)(9) of this section, a written acknowledgment 
from a donee organization must provide the following information--
    (i) The amount of any cash the taxpayer paid and a description (but 
not necessarily the value) of any property other than cash the taxpayer 
transferred to the donee organization;
    (ii) A statement of whether or not the donee organization provides 
any goods or services in consideration, in whole or in part, for any of 
the cash or other property transferred to the donee organization;
    (iii) If the donee organization provides any goods or services 
other than intangible religious benefits (as described in section 
170(f)(8)), a description and good faith estimate of the value of those 
goods or services; and
    (iv) If the donee organization provides any intangible religious 
benefits, a statement to that effect.
    (3) Contemporaneous. A written acknowledgment is contemporaneous if 
it is obtained by the taxpayer on or before the earlier of--
    (i) The date the taxpayer files its original return for the taxable 
year in which the contribution was made; or
    (ii) The due date (including extensions) for filing the taxpayer's 
original return for that year.
    (4) Donee organization. For purposes of this paragraph (f), a donee 
organization is an organization described in section 170(c).
    (5) Goods or services. Goods or services means cash, property, 
services, benefits, and privileges.
    (6) In consideration for. A donee organization provides goods or 
services in consideration for a taxpayer's payment if, at the time the 
taxpayer makes the payment to the donee organization, the taxpayer 
receives or expects to receive goods or services in exchange for that 
payment. Goods or services a donee organization provides in 
consideration for a payment by a taxpayer include goods or services 
provided in a year other than the year in which the taxpayer makes the 
payment to the donee organization.
    (7) Good faith estimate. For purposes of this section, good faith 
estimate means the donee organization's estimate of the fair market 
value of any goods or services, without regard to the manner in which 
the organization in fact made that estimate. See Sec. 1.170A-1(h)(4) 
for rules regarding when a taxpayer may treat a donee organization's 
estimate of the value of goods or services as the fair market value.
    (8) Certain goods or services disregarded--(i) In general. For 
purposes of section 170(f)(8), the following goods or services are 
disregarded--
    (A) Goods or services that have insubstantial value under the 
guidelines provided in Revenue Procedures 90-12, 1990-1 C.B. 471, 92-
49, 1992-1 C.B. 987, and any successor documents. (See 
Sec. 601.601(d)(2)(ii) of the Statement of Procedural Rules, 26 CFR 
part 601.); and
    (B) Annual membership benefits offered to a taxpayer for a payment 
of $75 or less per year that consist of--
    (1) Any rights or privileges, other than those described in section 
170(l), that the taxpayer can exercise frequently during the membership 
period. Examples of such rights and privileges include, but are not 
limited to, free or 

[[Page 39901]]
discounted admission to the organization's facilities or events, free 
or discounted parking, preferred access to goods or services, and 
discounts on the purchase of goods or services; and
    (2) Admission to events during the membership period that are open 
only to members of the donee organization and for which the donee 
organization reasonably projects that the cost per person (excluding 
any allocable overhead) for each such event is within the limits 
established for ``low cost articles'' under section 513(h)(2). The 
projected cost to the donee organization is determined at the time the 
organization first offers its membership package for the year (using 
section 3.07 of Revenue Procedure 90-12, or any successor documents, to 
determine the cost if items or services are donated).
    (ii) Examples. The following examples illustrate the rules of this 
paragraph (f)(8).

    Example 1. Membership benefits disregarded. Performing Arts 
Center E is an organization described in section 170(c). In return 
for a payment of $75, E offers a package of basic membership 
benefits that includes the right to purchase tickets to performances 
one week before they go on sale to the general public, free parking 
in E's garage during evening and weekend performances, and a 10% 
discount on merchandise sold in E's gift shop. In return for a 
payment of $150, E offers a package of preferred membership benefits 
that includes all of the benefits in the $75 package as well as a 
poster that is sold in E's gift shop for $20. The basic membership 
and the preferred membership are each valid for twelve months, and 
there are approximately 50 performances of various productions at E 
during a twelve month period. E's gift shop is open for several 
hours each week and at performance times. F, a patron of the arts, 
is solicited by E to make a contribution. E offers F the preferred 
membership benefits in return for a payment of $150 or more. F makes 
a payment of $300 to E. F can satisfy the substantiation requirement 
of section 170(f)(8) by obtaining a contemporaneous written 
acknowledgment from E that includes a description of the poster and 
a good faith estimate of its fair market value ($20) and disregards 
the remaining membership benefits.
    Example 2. Rights or privileges that cannot be exercised 
frequently. Community Theater Group G is an organization described 
in section 170(c). Every summer, G performs four different plays. 
Each play is performed two times. In return for a membership fee of 
$60, G offers its members free admission to any of its performances. 
Non-members may purchase tickets on a performance by performance 
basis for $15 a ticket. H, an individual who is a sponsor of the 
theater, is solicited by G to make a contribution. G tells H that 
the membership benefit will be provided in return for any payment of 
$60 or more. H chooses to make a payment of $350 to G and receives 
in return the membership benefit. G's membership benefit of free 
admission is not described in paragraph (f)(8)(i)(B) of this section 
because it is not a privilege that can be exercised frequently (due 
to the limited number of performances offered by G). Therefore, to 
meet the requirements of section 170(f)(8), a contemporaneous 
written acknowledgment of H's $350 payment must include a 
description of the free admission benefit and a good faith estimate 
of its value.

    (9) Goods or services provided to employees of donors--(i) Certain 
goods or services disregarded. For purposes of section 170(f)(8), goods 
or services provided by a donee organization to a taxpayer's employees 
in return for a payment to the organization may be disregarded to the 
extent that the goods or services provided to each employee are the 
same as those described in paragraph (f)(8)(i) of this section.
    (ii) No good faith estimate required for other goods or services. 
If a taxpayer makes a contribution of $250 or more to a donee 
organization and, in return, the donee organization offers the 
taxpayer's employees goods or services other than those described in 
paragraph (f)(9)(i) of this section, the contemporaneous written 
acknowledgment of the taxpayer's contribution is not required to 
include a good faith estimate of the value of such goods or services 
but must include a description of those goods or services.
    (iii) Example. The following example illustrates the rules of this 
paragraph (f)(9).

    Example. Museum J is an organization described in section 
170(c). For a payment of $40, J offers a package of basic membership 
benefits that includes free admission and a 10% discount on 
merchandise sold in J's gift shop. J's other membership categories 
are for supporters who contribute $100 or more. Corporation K makes 
a payment of $50,000 to J and in return, J offers K's employees free 
admission, a tee-shirt with J's logo that costs J $4.50, and a gift 
shop discount of 25%. The free admission for K's employees is the 
same as the benefit made available to holders of the $40 membership 
and is otherwise described in paragraph (f)(8)(i)(B) of this 
section. The tee-shirt given to each of K's employees is described 
in paragraph (f)(8)(i)(A) of this section. Therefore, a 
contemporaneous written acknowledgment of K's payment is not 
required to include a description or good faith estimate of the 
value of the free admission or the tee-shirts. However, because the 
gift shop discount offered to K's employees is different than that 
offered to those who purchase the $40 membership, the discount is 
not described in paragraph (f)(8)(i) of this section. Therefore, the 
contemporaneous written acknowledgment of K's payment is required to 
include a description of the 25% discount offered to K's employees.

    (10) Substantiation of out-of-pocket expenses. A taxpayer that 
incurs unreimbursed expenditures incident to the rendition of services, 
within the meaning of Sec. 1.170A-1(g), is treated as having obtained a 
contemporaneous written acknowledgment of those expenditures if the 
taxpayer--
    (i) Has adequate records under paragraph (a) of this section to 
substantiate the amount of the expenditures; and
    (ii) Obtains by the date prescribed in paragraph (f)(3) of this 
section a statement prepared by the donee organization containing--
    (A) A description of the services provided by the taxpayer;
    (B) The date the services were provided;
    (C) A statement of whether or not the donee organization provides 
any goods or services in consideration, in whole or in part, for the 
unreimbursed expenditures; and
    (D) The information required by paragraphs (f)(2)(iii) and (iv) of 
this section.
    (11) Contributions made by payroll deduction. [Reserved]
    (12) Distributing organizations as donees. [Reserved]
    (13) Transfers to certain trusts. Section 170(f)(8) does not apply 
to a transfer of property to a trust described in section 170(f)(2)(B), 
a charitable remainder annuity trust (as defined in section 664(d)(1)), 
or a charitable remainder unitrust (as defined in section 664(d)(2)). 
Section 170(f)(8) does apply, however, to a transfer to a pooled income 
fund (as defined in section 642(c)(5)).
    (14) Substantiation of charitable contributions made by a 
partnership or an S corporation. If a partnership or an S corporation 
makes a charitable contribution of $250 or more, the partnership or S 
corporation will be treated as the taxpayer for purposes of section 
170(f)(8). Therefore, the partnership or S corporation must 
substantiate the contribution with a contemporaneous written 
acknowledgment from the donee organization before reporting the 
contribution on its income tax return for the year in which the 
contribution was made and must maintain the contemporaneous written 
acknowledgment in its records. A partner of a partnership or a 
shareholder of an S corporation is not required to obtain any 
additional substantiation for his or her share of the partnership's or 
S corporation's charitable contribution.
    (15) Substantiation of matched payments--(i) In general. For 
purposes of section 170, if a taxpayer's payment to a donee 
organization is matched, in whole or in part, by another payor, and 

[[Page 39902]]
the taxpayer receives goods or services in consideration for its 
payment and some or all of the matching payment, those goods or 
services will be treated as provided in consideration for the 
taxpayer's payment and not in consideration for the matching payment.
    (ii) Example. The following example illustrates the rules of this 
paragraph (f)(15).

    Example. Taxpayer makes a $400 payment to Charity L, a donee 
organization. Pursuant to a matching payment plan, Taxpayer's 
employer matches Taxpayer's $400 payment with an additional payment 
of $400. In consideration for the combined payments of $800, L gives 
Taxpayer an item that it estimates has a fair market value of $100. 
L does not give the employer any goods or services in consideration 
for its contribution. The contemporaneous written acknowledgment 
provided to the employer must include a statement that no goods or 
services were provided in consideration for the employer's $400 
payment. The contemporaneous written acknowledgment provided to 
Taxpayer must include the amount of Taxpayer's payment, a 
description of the item received by Taxpayer, and a statement that 
L's good faith estimate of the value of the item received by 
Taxpayer is $100.

    (16) Effective date. This paragraph (f) applies to contributions 
made on or after the date that these regulations are published in the 
Federal Register as final regulations. However, taxpayers may rely on 
the rules of this paragraph (f) for contributions made on or after 
January 1, 1994.
    Par. 4. Section 1.6115-1 is added under the undesignated 
centerheading ``Miscellaneous Provisions'' to read as follows:


Sec. 1.6115-1  Disclosure requirements for quid pro quo contributions.
    (a) Good faith estimate defined--(1) In general. A good faith 
estimate of the value of goods or services provided by an organization 
described in section 170(c) in consideration for a taxpayer's payment 
to that organization is an estimate of the fair market value, within 
the meaning of Sec. 1.170A-1(c)(2), of the goods or services. The 
organization may use any reasonable methodology in making a good faith 
estimate, provided it applies the methodology in good faith. If the 
organization fails to apply the methodology in good faith, the 
organization will be treated as not having met the requirements of 
section 6115. See section 6714 for the penalties that apply for failure 
to meet the requirements of section 6115.
    (2) Good faith estimate for goods or services that are not 
commercially available. A good faith estimate of the value of goods or 
services that are not generally available in a commercial transaction 
may be determined by reference to the fair market value of similar or 
comparable goods or services. Goods or services may be similar or 
comparable even though they do not have the unique qualities of the 
goods or services that are being valued.
    (3) Examples. The following examples illustrate the rules of this 
paragraph (a).

    Example 1. Facility not available on a commercial basis. Museum 
M, an organization described in section 170(c), is located in 
Community N. In return for a payment of $50,000 or more, M allows a 
donor to hold a private event in a room located in M. No other 
private events are permitted to be held in M. In Community N, there 
are four hotels, O, P, Q, and R, that have ballrooms with the same 
capacity as the room in M. Of these hotels, only O and P have 
ballrooms that offer amenities and atmosphere that are similar to 
the amenities and atmosphere of the room in M (although O and P lack 
the unique collection of art that is displayed in the room of M). 
Because the capacity, amenities, and atmosphere of ballrooms in O 
and P are comparable to the capacity, amenities, and atmosphere of 
the room in M, a good faith estimate of the benefits received from M 
may be determined by reference to the cost of renting either the 
ballroom in O or the ballroom in P. The cost of renting the ballroom 
in O is $2500 and, therefore, a good faith estimate of the fair 
market value of the right to host a private event in the room at M 
is $2500. In this example, the ballrooms in O and P are considered 
similar and comparable facilities to the room in M for valuation 
purposes, notwithstanding the fact that the room in M displays a 
unique collection of art.
    Example 2. Services available on a commercial basis. Charity S 
is an organization described in section 170(c). S offers to provide 
a one-hour tennis lesson with Tennis Professional T in return for 
the first payment of $500 or more that it receives. T provides one-
hour tennis lessons on a commercial basis for $100. Taxpayer pays 
$500 to S and in return receives the tennis lesson with T. A good 
faith estimate of the fair market value of the lesson provided in 
exchange for Taxpayer's payment is $100.
    Example 3. Celebrity presence. Charity U is an organization 
described in section 170(c). In return for the first payment of 
$1000 or more that it receives, U will provide a dinner for two 
followed by an evening tour of Museum V conducted by Artist W, whose 
most recent works are on display at V. W does not provide tours of V 
on a commercial basis. Typically, tours of V are free to the public. 
Taxpayer pays $1000 to U and in return receives a dinner valued at 
$100 and an evening tour of V conducted by W. Because tours of V are 
typically free to the public, a good faith estimate of the value of 
the evening tour conducted by W is $0. In this example, the fact 
that Taxpayer's tour of V is conducted by W rather than V's regular 
tour guides does not render the tours dissimilar or incomparable for 
valuation purposes.

    (b) Certain goods or services disregarded. For purposes of section 
6115, an organization described in section 170(c) may disregard goods 
or services described in Sec. 1.170A-13(f)(8)(i).
    (c) Goods or services provided to employees of donors--
    (1) Certain goods or services disregarded. For purposes of section 
6115, goods or services provided by an organization described in 
section 170(c) to a taxpayer's employees in return for a payment to the 
organization may be disregarded to the extent that the goods or 
services provided to each employee are the same as those described in 
Sec. 1.170A-13(f)(8)(i).
    (2) Description permitted in lieu of good faith estimate for other 
goods or services. If a taxpayer makes a quid pro quo contribution in 
excess of $75 to an organization described in section 170(c) and, in 
return, the organization offers the taxpayer's employees goods or 
services other than those described in paragraph (c)(1) of this 
section, the organization's written disclosure statement required by 
section 6115 may include a description of the goods or services in lieu 
of a good faith estimate of the value of the goods or services, 
provided that the statement otherwise satisfies the requirements of 
section 6115.
    (d) Effective date. This section applies to contributions made on 
or after the date that these regulations are published in the Federal 
Register as final regulations. However, taxpayers may rely on the rules 
of this section for contributions made on or after January 1, 1994.
Margaret Milner Richardson,
Commissioner of Internal Revenue.
[FR Doc. 95-19063 Filed 8-3-95; 8:45 am]
BILLING CODE 4830-01-U