Handling Quid Pro Quo Contributions
Literally translated from Latin, quid pro quo means "something for something." However, the more common English translation is “this for that.” As a movie enthusiast, the phrase always reminds me of the 1991 Academy Award winning film "The Silence of the Lambs." There is a memorable scene where Hannibal Lecter is speaking to FBI Agent in Training Clarice Starling, “If I help you, Clarice, it will be "turns" with us too. Quid pro quo. I tell you things, you tell me things.”Simply put, the phrase typically means: you scratch my back, I’ll scratch yours.
The phrase has a slightly different impact in the world of nonprofit and tax-exempt organizations. In some instances, contributions to an organization may not be entirely gratuitous because the contributor is getting something of value in return. For example, people who pay to play in a charitable golf tournament receive a round of golf (and usually a few promotional knick-knacks). A portion of their payment goes toward the round of golf and a portion goes to the nonprofit. That is the essence of a quid pro quo contribution, and there are a few rules that a recipient nonprofit must follow.
If the value of the entire payment is more than $75, a nonprofit must provide the donors with a written disclosure that contains the following information:
- Inform the donors that only the portion of the payment going to the nonprofit is deductible from their federal taxes.
- Provide the good faith estimate of the fair market value of the good or service to be provided. Usually, a comparison to similar goods or services will suffice.
If the donation is being solicited by the nonprofit, it is a good practice to make the disclosure in connection with the solicitation. However, the disclosure can be made when the contribution is received or when the services or goods are given to the donor.
A disclosure is not required if the good or service received is of insubstantial value, which generally means that the value of the good or service is less than two percent of the total contribution. Additionally, no disclosure is required if there is no donative intent. An example of this is when someone purchases an item from a museum’s gift shop. There are some additional guidelines so it is always a good idea to check with your accountant or lawyer if you are unsure if a disclosure is required.
Because tax-exempt organizations can face sanctions or penalties from the Internal Revenue Service, it is important that they are in compliance. For more information, please visit the IRS’s website.