The Nonprofit FAQ

Can a tax-exempt organization sell coupon books to raise money?

Someone asked in soc.org.nonprofit: When "free" coupon books are given to donors who make a minimum donation to my organization, can't the full donation be deducted? John H. Taylor replied: The above is a totally false and misleading statement. I suggest you review the applicable IRS regulations and publications, especially IRS Publication 1771 — "Charitable Contributions" (at http://www.irs.gov/pub/irs-pdf/p1771.pdf). If a donor receives ANYTHING in exchange for a gift of $75 or more they must be told what is the fair market value of the benefit they are receiving and reduce their gift by a like amount to determine the net charitable contribution. Furthermore the IRS stipulates that by setting a minimum "donation" amount at which point your coupon book would be given, you have, in fact, established the FMV of the item and, therefore would disallow any charitable deduction except for amount paid over and above this minimum amount. This remains true even if the donor does not use all of the coupons. If you want further clarification on this I urge you to review paragraph 2004 of "Charitable Giving and Solicitation." Roger McCrummen added: [Any] statement that the income is non-taxable as long as it is applied to the work of the organization is incorrect. The IRS test for unrelated business income (which is taxed to the corporation) is not how the funds are used, but whether the activity that generated the funds is part of the organization's exempt (charitable) purposes or not. Selling coupon books is not an exempt activity (regardless of how the funds are used) unless the books are somehow related to the organization's exempt purposes (e.g. if it is a theatre organization with not for profit purposes to promote community productions, etc. and the coupons are for discounts to local productions, etc.). In addition, if the organization is liable for unrelated business income tax (UBIT), it may deduct (as would any business) the expenses involved in generating the income.