Fair market value - value of goods and services received

This article explains how to determine the Fair Market Value (FMV) of goods or services provided to donors, especially with fundraising events like galas/dinners, and how it impacts the tax-deductible portion of their contribution.

What is Fair Market Value (FMV)?

The Fair Market Value (FMV) is the commercial value of the goods or services a donor receives in exchange for their payment. This is particularly relevant for Quid Pro Quo contributions, where a donor receives a tangible benefit in return for their donation (e.g., a ticket to a fundraising event).

For tax purposes, the charitable contribution portion of the payment is the amount that exceeds the Fair Market Value.

Example: If a ticket costs $100 and includes a dinner with a Fair Market Value of $50, you would enter $50 as the FMV in Ticket Falcon. The tax-deductible portion of the ticket in this example is $50 ($100 payment - $50 FMV of dinner). There is no tax-deductible amount if the ticket price is equal to or less than the FMV.

Determining FMV for Gala Events

For a gala or similar fundraising event, the FMV is not simply the cost to your organization (e.g., just the venue rental or your total per-person cost). Instead, the FMV represents the commercial value of everything offered to the attendee at the event, as if they were purchasing it from a non-charitable, commercial vendor.

What to Include in Gala FMV:

• Meal: The market rate for a comparable dinner service, including food, beverages (alcoholic and non-alcoholic), and service.
• Entertainment: The commercial value of any performances, speakers, or other entertainment provided.
• Perks/Amenities: The commercial value of any other benefits received, such as gift bags, valet parking, or exclusive access.
• Venue Experience: While the venue cost alone is not the FMV, the quality and type of venue contribute to the overall commercial experience.

What FMV is NOT for a Gala:

• Your Organization's Cost: The FMV is explicitly not what it costs your organization to put on the event. For instance, if you receive donated food or a discounted venue, you must still estimate the commercial value of those items.
• The Entire Ticket Price: The entire ticket price is the donation amount, from which the FMV is subtracted to find the deductible portion.

How to Calculate Per-Person FMV for a Gala

To accurately determine the per-person FMV for your gala:

1. Estimate the Total Commercial Value of Benefits: Research what similar-quality meals, entertainment, and other perks would cost if purchased individually or as a package from commercial vendors in your area.
2. Sum the Values: Add up the estimated commercial values of all the goods and services each attendee receives.
3. Determine Per-Person FMV: This sum is your per-person Fair Market Value.

Example for Gala: If a gala ticket costs $500, and you estimate that a comparable dinner in a similar venue would cost $150, and the value of the entertainment and gift bag is $50, then the FMV for that ticket is $200 ($150 dinner + $50 entertainment/gift bag). The tax-deductible portion of the $500 ticket would be $300 ($500 payment - $200 FMV).

Important Considerations

• IRS Guidelines: The IRS requires non-profit organizations to provide a "good faith estimate" of the FMV of any goods or services provided in return for a contribution.
• Donor Acknowledgment: For contributions of $250 or more, your organization must provide a written acknowledgment to the donor that includes a description and a good faith estimate of the value of any goods or services provided.
• Accuracy: It is crucial to determine the FMV as accurately as possible, as this directly impacts the donor's potential tax deduction.

By clearly defining and calculating the FMV, you ensure compliance with tax regulations and provide your donors with accurate information for their tax purposes.