The Nonprofit FAQ

Can I donate my door prize back and get a tax deduction?

Mark Weinberg of Weinberg & Jacobs, LLP. in Rockville, Maryland responded to a question in CyberLaw (a service of CharityChannel.com) on July 25, 2003. The original question, posted on July 21 was: We have a supporter that was awarded a door prize (that cost her nothing) at one of our events and wants to donate it back to our organization so we can benefit from it in an upcoming auction at another event. Can we provide her with a letter of donation for the item? Mark Weinberg's reply: Yes, the good news is you can. The bad news is that, if the door prize was worth over $600, you must also send them a 1099, and whether or not you are required to do that, they have income equal to the fair market value of the door prize. Those are the technically correct answers. If the winner merely refused to accept the door prize in the first place, that is the best way to deal with this, as they then have no income, you don't have to send a form 1099, and the charity gets the property to give away a second time; the bad news here is there is no deduction for the winner taking this action, since the donor did not take the item into income and has no basis in the property. Why is this such a good result then? If the winner takes the property into income and then gives it back, it is likely that the contribution deduction will not fully offset the income, either because of self-employment taxes or because of their exceeding the 30% limit on contributions of property, or even a total disallowance if it is tangible personal property that cannot be used in the charity's work. The way many organizations handle this is, IMHO, technically wrong and subject to reversal by the IRS: Many organizations just let the person return the door prize when they discover a few months later that they cannot take the vacation or use to Day Spa. At that point they have already accepted the prize, have the income, and will only get limited benefit from the later deduction. In short, if the person has not yet accepted the prize, tell them to refuse to accept it, and tell them there is no deduction.