[Federal Register Volume 61, Number 242 (Monday, December 16, 1996)]
[Rules and Regulations]
[Pages 65946-65955]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-31719]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Parts 1 and 602

[TD 8690]
RIN-1545-AS94


Deductibility, Substantiation, and Disclosure of Certain 
Charitable Contributions

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final regulations.

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SUMMARY: This document contains final 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 regulations will affect organizations described in 
section 170(c) and individuals and entities that make payments to these 
organizations.

EFFECTIVE DATE: These regulations are effective December 16, 1996.

FOR FURTHER INFORMATION CONTACT: Jefferson K. Fox of the Office of 
Assistant Chief Counsel (Income Tax and Accounting) at 202-622-4930 
(not a toll-free call).

SUPPLEMENTARY INFORMATION:

Paperwork Reduction Act

    The collection of information contained in these final regulations 
has been reviewed and approved by the Office of Management and Budget 
in accordance with the requirements of the Paperwork Reduction Act (44 
U.S.C. 3507) under control number 1545-1464. Responses to this 
collection of information are required for charitable contribution 
deductions under section 170.
    An agency may not conduct or sponsor, and a person is not required 
to respond to, a collection of information unless the collection of 
information displays a valid control number.
    The estimated annual burden per recordkeeper varies from three 
minutes to one hour, depending on individual circumstances, with an 
estimated average of six minutes.
    Comments concerning the accuracy of this burden estimate and 
suggestions for reducing this burden should be sent to the Internal 
Revenue Service, Attn: IRS Reports Clearance Officer, PC:FP, 
Washington, DC 20224, and to the Office of Management and Budget, Attn: 
Desk Officer for the Department of the Treasury, Office of Information 
and

[[Page 65947]]

Regulatory Affairs, Washington, DC 20503.
    Books or records relating to this collection of information must be 
retained as long as their contents may be material in the 
administration of any internal revenue law. Generally, tax returns and 
tax return information are confidential, as required by 26 U.S.C. 6103.

Background

    This document contains amendments to the Income Tax Regulations (26 
CFR part 1) that provide guidance relating to (1) the substantiation 
rules for charitable contributions under section 170(f)(8) of the 
Internal Revenue Code of 1986 (Code), and (2) the disclosure 
requirements for quid pro quo contributions under section 6115. 
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. 
103-66, 107 Stat. 455, 1993-3 C.B. 43.
    Temporary regulations (TD 8544) and a notice of proposed rulemaking 
cross-referencing the temporary regulations were published in the 
Federal Register for May 27, 1994 (59 FR 27458, 27515). Those 
regulations primarily addressed substantiation of charitable 
contributions made by payroll deduction and substantiation of payments 
to a charitable organization in exchange for goods or services of 
insubstantial value. The notice of proposed rulemaking indicated that 
comments would be considered both on the issues addressed in the 
temporary regulations, and on other issues arising under section 
170(f)(8).
    A notice of proposed rulemaking (IA-44-94) addressing 
substantiation issues under section 170(f)(8) other than contributions 
made by payroll deduction was published in the Federal Register for 
August 4, 1995 (60 FR 39896). Included in these proposed regulations 
were the provisions that had originally appeared in the temporary 
regulations published on May 27, 1994, relating to the substantiation 
of payments to charitable organizations in exchange for goods or 
services of insubstantial value. In drafting these proposed 
regulations, the IRS had the benefit of the comments received in 
response to the notice of proposed rulemaking published in the Federal 
Register for May 27, 1994. Many of the suggestions offered in the 
comments were incorporated into the proposed regulations.
    Final regulations (TD 8623) relating to the substantiation of 
charitable contributions made by payroll deduction were published in 
the Federal Register for October 12, 1995 (60 FR 53126). These final 
regulations did not include the provisions relating to the 
substantiation of payments to charitable organizations in exchange for 
goods or services with insubstantial value that had appeared in the 
temporary regulations published on May 27, 1994 and were also included 
in the proposed regulations published on August 4, 1995. The temporary 
regulations published in the Federal Register for May 27, 1994, were 
removed. For the convenience of taxpayers, the final regulations 
relating to the substantiation of charitable contributions made by 
payroll deduction (Sec. 1.170A-13(f)(11) and (12)) that were published 
in the Federal Register for May 27, 1994, have been reprinted with the 
final regulations adopted by this Treasury Decision.
    Comments were received in response to the notice of proposed 
rulemaking published on August 4, 1995, and a public hearing was held 
on November 1, 1995. After consideration of those comments, together 
with the relevant comments received in response to the notice of 
proposed rulemaking published on May 27, 1994, the proposed regulations 
under sections 170(f)(8) and 6115 are adopted as revised by this 
Treasury Decision.

Public Comments

Intent To Make a Charitable Contribution

    Section 1.170A-1(h) of the final regulations incorporates the two-
part test adopted by the Supreme Court in United States v. American Bar 
Endowment, 477 U.S. 105 (1986), for determining deductibility under 
section 170(a) of a payment that is partly in consideration for goods 
or services. A deduction is not allowed for a payment to charity in 
consideration for goods or services except to the extent the amount of 
the payment exceeds the fair market value of the goods or services. In 
addition, a deduction is not allowed unless the taxpayer intends to 
make a payment in excess of the fair market value of the goods or 
services.
    Section 1.170A-13(f)(6) provides that a charitable organization 
provides goods or services ``in consideration for'' a taxpayer's 
payment if, at the time of payment, the taxpayer receives or ``expects 
to receive'' goods or services in exchange. One commenter stated that a 
charitable organization has no way of knowing what a taxpayer expects 
to receive, and that the regulation requires the charity to determine 
its donors' states of mind. The commenter suggested that a payment be 
treated as made in consideration for goods or services ``if the donee 
organization expects to provide and does provide services of which the 
donor has been informed.'' Another commenter questioned whether donor 
appreciation events, such as banquets honoring contributors, are held 
``in consideration for'' charitable contributions. The commenter also 
asked whether invitations to occasional events not disclosed to 
prospective donors until after they make their contributions are ``in 
exchange for'' the contributions.
    The regulations follow American Bar Endowment by incorporating a 
standard that is based on the facts and circumstances of each 
charitable contribution. When a donor's contribution is made in 
response to an express promise of a benefit, the donor generally will 
have an expectation of a quid pro quo. A donor may also have an 
expectation of a quid pro quo when the donor makes a contribution with 
knowledge that the charitable donee has conferred a benefit on other 
donors making comparable contributions. For example, if a charity has a 
history of sponsoring a dinner-dance for donors making substantial 
contributions, a donor making a substantial contribution may have an 
expectation of receiving an invitation to such an event. The 
expectation of a quid pro quo may exist even though the donor is not 
aware of the exact nature of the quid pro quo (e.g., a donation to a 
charity that sponsors a donor appreciation event of a different type 
every year). This standard for determining a donor's expectation of a 
quid pro quo disallows deductions in situations where facts and 
circumstances indicate that the donor expected, at the time of his or 
her payment to charity, that there would be a quid pro quo, even though 
there was no explicit promise of one.
    A commenter requested guidance on the proper treatment of a payment 
in consideration for a quid pro quo received in a year after the year 
of payment. Under section 1.170A-13(f)(6), goods or services provided 
by donee organizations in consideration for a donor's payment include 
goods or services provided in a year other than the year of payment. 
Accordingly, if a donor makes a payment to a charitable organization in 
exchange for goods or services, the donor's deductible charitable 
contribution for the year of payment is limited to the amount, if any, 
by which the payment exceeds the value of those goods or services, even 
if they are not available to the donor until a subsequent year.

[[Page 65948]]

Refusal of Benefits

    Commenters asked for guidance on the proper manner of 
substantiating a contribution by a donor who refuses benefits offered 
by a charitable organization. One commenter suggested that the 
regulations indicate that when a taxpayer receives a right to quid pro 
quo benefits but does not use them, the taxpayer is not necessarily 
allowed a charitable contribution deduction in the full amount of the 
quid pro quo payment. Another suggested that a taxpayer wishing to 
deduct the full amount of a quid pro quo payment could check a box on a 
document to be sent to the charity at the time of contribution to show 
refusal of the benefit.
    These comments are consistent with IRS views. Rev. Rul. 67-246, 
1967-2 C.B. 104, provides guidance relating to the refusal of benefits 
offered by a charitable organization. The revenue ruling holds that a 
taxpayer choosing not to use tickets that were made available to him is 
not entitled to a greater contribution than would otherwise be allowed; 
i.e., the deduction is limited to the amount paid in excess of the 
value of the tickets received in exchange. 1967-2 C.B. 106. A deduction 
in the full amount of a taxpayer's payment may be allowed, however, if 
the taxpayer properly rejects the right to the tickets. Rev. Rul. 67-
246 contains two examples (Examples 3 and 7) illustrating ways that 
donors can effectively reject benefits offered by charitable 
organizations. Example 7 illustrates that a check-off box on a form 
provided by the charity can be used to reject a ticket at the time of 
contribution. A taxpayer who has properly rejected a benefit offered by 
a charitable organization may claim a deduction in the full amount of 
the payment to the charitable organization, and the contemporaneous 
written acknowledgment need not reflect the value of the rejected 
benefit.

Certain Goods or Services Disregarded

Goods or Services With Insubstantial Value
    Under guidelines set forth in Rev. Proc. 90-12, 1990-1 C.B. 471, 
and Rev. Proc. 92-49, 1992-1 C.B. 987, certain goods or services 
received in exchange for a payment to a charity are treated as having 
insubstantial value and can therefore be disregarded for the purpose of 
determining the amount of a taxpayer's payment that is deductible as a 
charitable contribution. Under these guidelines, if a taxpayer makes a 
payment to a charitable organization in the context of a fundraising 
campaign, and receives benefits with a fair market value of not more 
than two percent of the amount of the payment (up to a maximum of $67, 
for 1996), the benefits received are considered to have insubstantial 
value for purposes of determining the amount of the taxpayer's 
contribution. (The $67 benefit limitation is adjusted annually for 
inflation.)
    Further, if a taxpayer makes a payment of $33.50 or more to a 
charity and receives only token items in return, the items are 
considered to have insubstantial value if they (1) bear the charity's 
name or logo, and (2) have an aggregate cost to the charity of $6.70 or 
less. (The $33.50 and $6.70 amounts apply to payments made in 1996; 
these amounts are adjusted annually for inflation.) In addition, 
newsletters not of commercial quality and low-cost items provided for 
free without an advance order are considered to have insubstantial 
value.
    Under section 1.170A-13(f)(8)(i)(A) of the regulations, the same 
types of goods and services disregarded under the guidelines of Rev. 
Procs. 90-12 and 92-49 can be disregarded for purposes of 
substantiation under section 170(f)(8). One commenter asked whether the 
contemporaneous written acknowledgment provided to a donor receiving 
goods or services of insubstantial value should indicate that no goods 
or services were received. When a donee organization provides a donor 
only with goods or services having insubstantial value under Rev. 
Procs. 90-12 and 92-49, the contemporaneous written acknowledgment may 
indicate that no goods or services were provided in exchange for the 
donor's payment. See Example 2, Sec. 1.170A-13(f)(8)(ii).
    Another commenter stated that the rules in Rev. Procs. 90-12 and 
92-49 for goods or services of insubstantial value are unduly 
restrictive and prevent charitable organizations from recognizing 
longstanding, generous contributors with suitable gifts of 
appreciation. Another argued that the costs of token items received by 
a taxpayer during the year from a charity should not be aggregated. 
Sections 1.170A-13(f)(8)(B) and 1.170A-13(f)(9)(i) provide that certain 
membership benefits provided in exchange for a payment of $75 or less 
may be disregarded for purposes of determining whether any quids pro 
quo were provided to the donor. For purposes of sections 170(f)(8) and 
6115, these provisions supplement the categories of goods or services 
treated as having insubstantial value under the guidelines of Rev. 
Procs. 90-12 and 92-49. The IRS and Treasury believe that application 
of the guidelines of Rev. Procs. 90-12 and 92-49, together with the 
membership benefit provisions in the final regulations, strikes an 
appropriate balance between administrative and compliance concerns 
under sections 170(f)(8) and 6115. Accordingly, the guidelines of Rev. 
Procs. 90-12 and 92-49 have not been modified.
Membership Benefits
    The regulations provide limited relief with respect to certain 
types of benefits customarily provided to donors in exchange for 
membership payments. Two types of membership benefits offered in 
exchange for a payment of $75 or less may be disregarded: (1) Free 
admission to members-only events with a per-person cost to the charity 
that is no higher than the standard for low- cost articles under 
section 513(h)(2)(C) ($6.70 for 1996); and (2) rights or privileges 
that can be exercised frequently during the membership period (other 
than rights or privileges described in section 170(l), governing rights 
to purchase tickets for college athletic events).
    Some commenters said that the term frequently, when read in 
conjunction with the examples, provided sufficient clarity and 
appropriate flexibility. Other commenters expressed concern about use 
of the term frequently, stating that it was vague and imprecise. For 
smaller organizations, they argued, in determining whether a right of 
free admission to a series of events can be frequently exercised, 
consideration should be given to the number of events held by the 
organization each year. The IRS and Treasury believe that a charity can 
make a determination that a right or privilege is frequently 
exercisable by reference to the examples that were in the proposed 
regulations and are adopted in the final regulations.
    A commenter suggested that the $75 payment amount in the special 
rules for membership benefits should be indexed for inflation. The IRS 
and Treasury believe that it is important for the membership payment 
amount to be a number that can be easily remembered by charities and 
donors. For this reason, annual inflation adjustments are not 
advisable. However, the IRS and Treasury will consider increases to 
this $75 figure in the future.
    A commenter asked whether the rule that allows taxpayers to 
disregard certain membership benefits applies to discounts offered by a 
donee organization for purchases from retailers working with the 
charity to provide discounts to members. These discounts

[[Page 65949]]

are to be treated like any other rights or privileges and, therefore, 
may be disregarded for purposes of section 170(f)(8) if they can be 
exercised frequently during the membership period.
Goods or Services Provided to a Donor's Employees
    Prior to publication of the proposed regulations, several 
commenters asked for guidance on the proper method of valuation of 
goods or services provided by charitable organizations to employees of 
donors. The final regulations follow the proposed regulations and 
provide that goods or services provided to a donor's employees can be 
disregarded if they consist of the types of benefits that could be 
disregarded when provided directly to a donor (i.e., goods or services 
with insubstantial value and certain annual membership benefits). For 
any other types of goods or services provided to employees of a donor 
making a contribution of $250 or more, the contemporaneous written 
acknowledgment must describe the goods or services, but need not 
include the donee organization's good faith estimate of their fair 
market value.
    A commenter stated that the special rule for goods or services 
provided to employees of a donor should also be available for partners 
in a partnership. In the final regulations, the exception for goods or 
services provided to a donor's employees has been modified to include 
partners in a donor-partnership.
    A commenter was concerned about charities that receive funds from a 
private foundation established by a business entity. The commenter 
suggested that such charities should be permitted to provide benefits 
to employees of the business entity without any tax consequences. 
Because this suggestion raises issues beyond the scope of this 
regulation (including issues relating to the self-dealing rules under 
section 4941), this suggestion was not adopted.
    A commenter stated that when employees receive benefits as a result 
of an employer's charitable contribution, it would be easier for the 
charity (rather than the employer) to estimate the fair market value of 
the benefits. Another commenter stated that when employees receive 
benefits that cannot be disregarded under section 170, the employer/
donor is likely to deduct the value of those benefits as a business 
expense under section 162. Because employers may claim the full amount 
of their payments to charity--including the value of the benefits--as a 
deduction, the commenter suggested that employers should be relieved of 
the burden of valuing such benefits, and that the full amount of such 
payments should be deductible under section 170.
    The IRS and Treasury recognize that in cases where employee 
benefits cannot be disregarded for purposes of section 170, employers 
may nevertheless seek to deduct their costs pursuant to section 162. 
For deductions under section 170, however, United States v. American 
Bar Endowment, supra, limits the allowable deduction to the amount of 
the employer's payment in excess of the value of employee benefits. 
Accordingly, if the employee benefits cannot be disregarded, their 
value must be subtracted from the amount of the employer's payment to 
determine the correct amount of the charitable contribution deduction. 
Although valuation may be difficult, the IRS and Treasury continue to 
believe that the employer is in a better position than the charity to 
be responsible for valuation of benefits provided to employees.
Payments for the Right To Purchase Tickets to College Athletic Events
    A commenter asked for clarification regarding the applicability of 
the substantiation requirements to payments for the right to purchase 
tickets to college athletic events. Section 170(l) provides that 
payments to colleges or universities for the right to purchase tickets 
to athletic events are partially (eighty percent) deductible as 
charitable contributions. The final regulations have been modified to 
clarify how sections 170(f)(8) and 6115 apply to payments described in 
section 170(l).
    For purposes of section 170(f)(8), twenty percent of the amount 
paid for the right to purchase tickets for seating at college or 
university athletic events is treated as the fair market value of such 
right. When the total payment for the right to purchase tickets to 
college athletic events is $312.50 or more, the portion of the payment 
treated as a charitable contribution will be $250 or more, and 
substantiation will be required under section 170(f)(8). For purposes 
of section 6115, twenty percent of the amount paid for the right to 
purchase tickets for seating at college or university athletic events 
is treated as a good faith estimate of the fair market value of this 
right.

Rules Applicable to Corporations

    Several commenters suggested that subchapter C corporations (C 
corporations) should be relieved of the substantiation requirements. 
Some indicated that C corporations should be exempt; others argued for 
a de minimis exception for C corporations making substantial 
contributions. Under a de minimis exception, deductions for all of a C 
corporation's charitable contributions would be allowed if the 
corporation had contemporaneous written acknowledgments substantiating 
most, or substantially all, of its contributions. These commenters 
stated that the substantiation requirements were enacted to deter 
individuals--not businesses--that had claimed charitable contribution 
deductions for the full amounts of their payments to charitable 
organizations, even though they had received quids pro quo in exchange. 
They suggested that the IRS exercise the authority provided in section 
170(f)(8)(E) and make the substantiation requirements inapplicable to C 
corporations. The final regulations do not adopt these suggestions. The 
IRS and Treasury believe that exempting C corporations from the 
substantiation requirements could, in fact, encourage abuses and would 
therefore conflict with the purpose of section 170(f)(8).

Meaning of Contemporaneous

    A commenter asked whether a taxpayer may file an amended income tax 
return to claim a charitable contribution deduction if the taxpayer 
obtained the contemporaneous written acknowledgment for the 
contribution after timely filing the original return. Section 
170(f)(8)(C) provides that a written acknowledgment is contemporaneous 
if obtained on or before the earlier of (1) the date that the taxpayer 
files the return for the year in which the contribution was made, or 
(2) the due date (including extensions) for filing the return for that 
taxable year. A written acknowledgment obtained after a taxpayer files 
the original return for the year of the contribution is not 
contemporaneous within the meaning of the statute.

Substantiation of Multiple Contributions

    Several commenters asked whether the substantiation requirements 
apply to multiple contributions totaling $250 or more made to a single 
charity during a single year, when each contribution is less than $250. 
The conference report accompanying the Omnibus Budget Reconciliation 
Act of 1993 indicates that separate payments will be treated as 
separate contributions and will not be aggregated for purposes of 
applying the $250 threshold. H.R. Conf. Rep. No. 213, 103d Cong., 1st 
Sess. 565, n. 29 (1993). If there is no separate payment of $250 or 
more, substantiation under section 170(f)(8) is not required, even if 
the sum of the separate payments is $250 or

[[Page 65950]]

more. Section 1.170A-13(f)(1) has been modified to clarify this. A 
commenter asked whether there must be a separate contemporaneous 
written acknowledgment for each contribution of $250 or more. Section 
1.170A-13(f)(1) has been modified to clarify that for multiple 
contributions of $250 or more to one charity, one acknowledgment that 
reflects the total amount of the taxpayer's contributions to the 
charity for the year is sufficient.

Form of Substantiation

    Commenters asked whether a contemporaneous written acknowledgment 
must be in any particular format. As long as it is in writing and 
contains the information required by law, a contemporaneous written 
acknowledgment may be in any format. One commenter suggested that the 
regulations should allow charities to report charitable contributions 
directly to the IRS on Form 990 or 990-PF. Section 170(f)(8) authorizes 
the Secretary to prescribe regulations allowing donee organizations to 
satisfy the requirements of section 170(f)(8) by filing a return that 
includes the information described in section 170(f)(8)(B). The IRS and 
Treasury have decided not to implement this suggestion at this time. 
However, in an effort to reduce paperwork and taxpayer burdens, the IRS 
will examine whether any existing IRS forms can be modified to assist 
in their use in substantiating charitable contributions.
    A commenter asked for guidance on the proper method of 
substantiating payments by corporations that agree to match employee 
contributions to charity. When an employee makes a charitable 
contribution that is eligible for a corporate matching payment, some 
charities routinely send the participating corporation a letter, 
notifying the corporation of the employee's gift and thanking it in 
advance for the matching payment the charity expects to receive. 
Commenters suggested that this letter be treated as meeting the 
corporation's requirements under section 170(f)(8). This suggestion has 
not been adopted, because letters sent in advance of a contribution do 
not substantiate the contribution. The acknowledgment under section 
170(f)(8) must include information about what has been ``contributed.'' 
The acknowledgment cannot be completed until after the charitable 
contribution has been made. (See section 1.170A-1(b), which states that 
ordinarily a contribution is made at the time delivery is effected.)

Out-of-Pocket Expenses

    The proposed regulations allowed volunteers who incurred 
unreimbursed out-of-pocket expenses while performing services for a 
charity to substantiate their contributions with a statement that 
described the services and the date they were performed. The 
acknowledgment was not required to list the amount of the unreimbursed 
expense. Several commenters suggested an exemption from the 
substantiation requirements for unreimbursed out-of-pocket expenses 
incurred incident to the rendition of services to a donee organization. 
Exemption is appropriate, they argued, because the requirements are 
burdensome, particularly since a donee organization is often unaware of 
the amount and nature of expenses incurred by volunteers performing 
services on behalf of the charity, or the exact dates on which the 
volunteer services were performed. The final regulations eliminate the 
requirement that the contemporaneous written acknowledgment include the 
date on which services were performed for the charity. However, to 
carry out the purposes of the statute, volunteers claiming a charitable 
contribution deduction for an unreimbursed expense of $250 or more are 
still required to obtain substantiation confirming the type of services 
they performed for the charity.

Good Faith Estimate

    Section 170(f)(8) requires a written acknowledgment furnished by a 
charity to a donor to include a good faith estimate of the value of any 
goods or services provided to the donor. Section 6115(a)(2) similarly 
requires a written disclosure statement provided to a donor making a 
quid pro quo contribution of more than $75 to include a good faith 
estimate of the value of goods or services provided to the donor. The 
regulations define a good faith estimate as an estimate of the fair 
market value of the goods or services. A taxpayer can generally rely on 
the good faith estimate provided by a charity.
    A commenter stated that the regulations should contain an example 
illustrating how charities can compute the fair market value of goods 
or services. We have not adopted this suggestion. There is no single 
correct way to determine fair market value; a charitable organization 
may use any reasonable methodology (e.g., comparison with comparable 
retail prices, markup from wholesale cost) to determine the fair market 
value. Examples 1 and 2 of section 1.6115-1(a)(3) illustrate this rule.
    A commenter recommended that the regulations state that a donor 
does not have to use the good faith estimate provided by a charitable 
organization if the donor believes another estimate is more accurate. 
The regulations do not mandate that a donor use the estimate provided 
by a donee organization in calculating the deductible amount. Indeed, 
when a taxpayer knows or has reason to know that an estimate is 
inaccurate, the taxpayer may not treat the donee organization's 
estimate as the fair market value.
    A commenter suggested that the regulations indicate that 
recognition items, such as plaques or trophies with an honoree's name 
inscribed, should be considered to have little, if any, fair market 
value. This suggestion has not been adopted. Inscribed plaques and 
trophies may have some value, even though the value may be less than 
cost. In addition, see Sec. 1.170A-13(f)(8)(i)(A) regarding goods or 
services with insubstantial value.
    Another commenter asked whether the listing of a donor's name in a 
program at a charity-sponsored event has a substantial value. An 
acknowledgment in such a program, which identifies--rather than 
promotes--a donor, is an inconsequential benefit with no significant 
value. See Rev. Rul. 68-432, 1968-2 C.B. 104, 105, holding that 
``[s]uch privileges as being associated with or being known as a 
benefactor of the [charitable] organization are not significant return 
benefits that have monetary value.''

Contributions to a Split-Interest Trust

    Section 1.170A-13(f)(13) of the proposed regulations provides that 
section 170(f)(8) does not apply to a transfer of property to a 
charitable remainder unitrust (as defined in section 664(d)(2)). A 
commenter observed that there are two other types of unitrusts in 
addition to the type described in section 664(d)(2), and that these 
unitrusts should be treated similarly. The final regulations have been 
modified to provide that the substantiation requirements of section 
170(f)(8) do not apply to transfers to unitrusts described in section 
664(d)(3) or section 1.664-3(a)(1)(i)(b), as well as to unitrusts 
described in section 664(d)(2).
    Section 1.170A-13(f)(13) of the proposed regulations provides that 
section 170(f)(8) applies to a transfer to a pooled income fund. 
Commenters requested further guidance on the proper way to substantiate 
contributions to pooled income funds. The final regulations have been 
modified to

[[Page 65951]]

require, in the case of a transfer of cash or other property to a 
pooled income fund, that the written acknowledgment of the charitable 
organization maintaining the fund include a statement that the cash or 
other property was transferred to the organization's pooled income fund 
and state whether any goods or services, in addition to the income 
interest in the fund, were provided to the transferor. The 
contemporaneous written acknowledgment need not include an estimate of 
the value of the income interest in the pooled income fund. The final 
regulations also provide guidance on the proper method of 
substantiating a deduction claimed by a taxpayer who has purchased an 
annuity from a charitable organization.

Special Analyses

    It has been determined that this Treasury decision is not a 
significant regulatory action as defined in Executive Order 12866. 
Therefore, a costbenefit analysis is not required. It also has been 
determined that section 553(b) of the Administrative Procedure Act (5 
U.S.C. chapter 5) does not apply to these regulations, and because the 
notice of proposed rulemaking preceding the regulations was issued 
prior to March 29, 1996, the Regulatory Flexibility Act (5 U.S.C. 
chapter 6) does not apply. See 5 U.S.C. section 601, Pub. L. 104-121 
section 245. Pursuant to section 7805(f) of the Internal Revenue Code, 
the notice of proposed rulemaking preceding these regulations was 
submitted to the Chief Counsel for Advocacy of the Small Business 
Administration for comment on the impact of the proposed regulations on 
small businesses.

Drafting Information

    The principal author of these regulations is Jefferson K. Fox, 
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

26 CFR Part 1

    Income taxes, Reporting and recordkeeping requirements.

26 CFR Part 602

    Reporting and recordkeeping requirements.
Adoption of Amendments to the Regulations
    Accordingly, 26 CFR parts 1 and 602 are amended as follows:

PART 1--INCOME TAXES

    Paragraph 1. The authority citation for part 1 is amended by adding 
a new entry in numerical order 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 (as defined in Sec. 1.170A-13(f)(6)) 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 a 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 a taxpayer is a dealer in the type of goods or services provided in 
consideration for the taxpayer's 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 attending the event. 
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

[[Page 65952]]

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 December 16, 1996. 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 by revising paragraph (f) to 
read as follows:


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

* * * * *
    (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 the donee organization. A taxpayer who makes more 
than one contribution of $250 or more to a donee organization in a 
taxable year may substantiate the contributions with one or more 
contemporaneous written acknowledgments. 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. Separate 
contributions of less than $250 are not subject to the requirements of 
section 170(f)(8), regardless of whether the sum of the contributions 
made by a taxpayer to a donee organization during a taxable year equals 
$250 or more.
    (2) Written acknowledgment. Except as otherwise provided in 
paragraphs (f)(8) through (f)(11) and (f)(13) 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 the 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 a 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 in exchange 
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 may include, but are not 
limited to, free or 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 a donee organization and for which the donee 
organization reasonably projects that the cost per person (excluding 
any allocable overhead) attending 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 of any items or services that 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

[[Page 65953]]

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. Contemporaneous written acknowledgment need not 
mention rights or privileges that can be disregarded. The facts are 
the same as in Example 1, except that F made a payment of $300 and 
received only a basic membership. F can satisfy the section 
170(f)(8) substantiation requirement with a contemporaneous written 
acknowledgment stating that no goods or services were provided.
    Example 3. 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.
    Example 4. Multiple memberships. In December of each year, K, an 
individual, gives each of her six grandchildren a junior membership 
in Dinosaur Museum, an organization described in section 170(c). 
Each junior membership costs $50, and K makes a single payment of 
$300 for all six memberships. A junior member is entitled to free 
admission to the museum and to weekly films, slide shows, and 
lectures about dinosaurs. In addition, each junior member receives a 
bi-monthly, non-commercial quality newsletter with information about 
dinosaurs and upcoming events. K's contemporaneous written 
acknowledgment from Dinosaur Museum may state that no goods or 
services were provided in exchange for K's payment.

    (9) Goods or services provided to employees or partners of donors--
(i) Certain goods or services disregarded. For purposes of section 
170(f)(8), goods or services provided by a donee organization to 
employees of a donor, or to partners of a partnership that is a donor, 
in return for a payment to the organization may be disregarded to the 
extent that the goods or services provided to each employee or partner 
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 or partners 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 for one year, a tee-shirt with J's logo that costs J 
$4.50, and a gift shop discount of 25% for one year. 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, the 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 who 
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) 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
    (C) The information required by paragraphs (f)(2) (iii) and (iv) of 
this section.
    (11) Contributions made by payroll deduction--(i) Form of 
substantiation. A contribution made by means of withholding from a 
taxpayer's wages and payment by the taxpayer's employer to a donee 
organization may be substantiated, for purposes of section 170(f)(8), 
by both--
    (A) A pay stub, Form W-2, or other document furnished by the 
employer that sets forth the amount withheld by the employer for the 
purpose of payment to a donee organization; and
    (B) A pledge card or other document prepared by or at the direction 
of the donee organization that includes a statement to the effect that 
the organization does not provide goods or services in whole or partial 
consideration for any contributions made to the organization by payroll 
deduction.
    (ii) Application of $250 threshold. For the purpose of applying the 
$250 threshold provided in section 170(f)(8)(A) to contributions made 
by the means described in paragraph (f)(11)(i) of this section, the 
amount withheld from each payment of wages to a taxpayer is treated as 
a separate contribution.
    (12) Distributing organizations as donees. An organization 
described in section 170(c), or an organization described in 5 CFR 
950.105 (a Principal Combined Fund Organization for purposes of the 
Combined Federal Campaign) and acting in that capacity, that receives a 
payment made as a contribution is treated as a donee organization 
solely for purposes of section 170(f)(8), even if the organization 
(pursuant to the donor's instructions or otherwise) distributes the 
amount received to one or more organizations described in section 
170(c). This paragraph (f)(12) does not apply, however, to a case in 
which the

[[Page 65954]]

distributee organization provides goods or services as part of a 
transaction structured with a view to avoid taking the goods or 
services into account in determining the amount of the deduction to 
which the donor is entitled under section 170.
    (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) or 
(d)(3) or Sec. 1.664(3)(a)(1)(i)(b)). Section 170(f)(8) does apply, 
however, to a transfer to a pooled income fund (as defined in section 
642(c)(5)); for such a transfer, the contemporaneous written 
acknowledgment must state that the contribution was transferred to the 
donee organization's pooled income fund and indicate whether any goods 
or services (in addition to an income interest in the fund) were 
provided in exchange for the transfer. The contemporaneous written 
acknowledgment is not required to include a good faith estimate of the 
income interest.
    (14) Substantiation of payments to a college or university for the 
right to purchase tickets to athletic events. For purposes of paragraph 
(f)(2)(iii) of this section, the right to purchase tickets for seating 
at an athletic event in exchange for a payment described in section 
170(l) is treated as having a value equal to twenty percent of such 
payment. For example, when a taxpayer makes a payment of $312.50 for 
the right to purchase tickets for seating at an athletic event, the 
right to purchase tickets is treated as having a value of $62.50. The 
remaining $250 is treated as a charitable contribution, which the 
taxpayer must substantiate in accordance with the requirements of this 
section.
    (15) 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.
    (16) Purchase of an annuity. If a taxpayer purchases an annuity 
from a charitable organization and claims a charitable contribution 
deduction of $250 or more for the excess of the amount paid over the 
value of the annuity, the contemporaneous written acknowledgment must 
state whether any goods or services in addition to the annuity were 
provided to the taxpayer. The contemporaneous written acknowledgment is 
not required to include a good faith estimate of the value of the 
annuity. See Sec. 1.170A-1(d)(2) for guidance in determining the value 
of the annuity.
    (17) 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 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)(17).

    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 a statement of 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.

    (18) Effective date. This paragraph (f) applies to contributions 
made on or after December 16, 1996. 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. Private events 
other than those held by such donors are not 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 in 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

[[Page 65955]]

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) Value of the right to purchase tickets to college or university 
athletic events. For purposes of section 6115, the right to purchase 
tickets for seating at an athletic event in exchange for a payment 
described in section 170(l) is treated as having a value equal to 
twenty percent of such payment.
    (d) Goods or services provided to employees or partners 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 employees of a donor or to partners of a partnership 
that is a donor in return for a payment to the donee organization may 
be disregarded to the extent that the goods or services provided to 
each employee or partner 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. The written disclosure statement required by section 
6115 may include a description of goods or services, in lieu of a good 
faith estimate of their value, if the donor is--
    (i) An employer and, in return for the donor's quid pro quo 
contribution, an organization described in section 170(c) provides the 
donor's employees with goods or services other than those described in 
paragraph (d)(1) of this section; or
    (ii) A partnership and, in return for its quid pro quo 
contribution, the organization provides partners in the partnership 
with goods or services other than those described in paragraph (d)(1) 
of this section.
    (e) Effective date. This section applies to contributions made on 
or after December 16, 1996. However, taxpayers may rely on the rules of 
this section for contributions made on or after January 1, 1994.

PART 602--OMB CONTROL NUMBERS UNDER THE PAPERWORK REDUCTION ACT

    Par. 5. The authority citation for part 602 continues to read as 
follows:

    Authority: 26 U.S.C. 7805.

    Par. 6. Section 602.101(c) is amended by adding the following 
entries in numerical order to the table:


Sec. 602.101  OMB Control numbers.

* * * * *
    (c) * * *

------------------------------------------------------------------------
                                                             Current OMB
     CFR part or section where identified and described      control No.
------------------------------------------------------------------------
                                                                        
              *        *        *        *        *                     
Section 1.170A-13(f).......................................    1545-1464
                                                                        
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Section 1.6115-1...........................................    1545-1464
                                                                        
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Margaret Milner Richardson,
Commissioner of Internal Revenue.

    Approved: November 27, 1996.
Donald C. Lubick,
Acting Assistant Secretary of the Treasury.
[FR Doc. 96-31719 Filed 12-13-96; 8:45 am]
BILLING CODE 4830-01-U