Make Sure You Document Your ALS Donation!
What do George Bush, Bill Gates and Mark Zuckerberg have in common with my sister, the partners of Anders, and me? The connection might not be immediately apparent… All of us, along with a reported 1.7 million other people, have accepted the ALS Ice Bucket Challenge and soaked ourselves with gallons of ice water while our friends, family, and co-workers watched on Facebook, Twitter, YouTube, and every other imaginable social media outlet. Even the partners of Anders went under the bucket – click here to see the video.
Those that were challenged and did not respond within 24 hours saved the potentially embarrassing and very shocking deluge of ice and water being poured on their head. However, their penance was to pay $100 to the ALS Association. What started with small $100 donations turned into a social media sensation that has raised a reported $79.7 million since the end of July, 2014.
While it has been amazing to watch so many people contribute to such a worthy organization, the CPA in me comes out and asks the question – what does Uncle Sam think about the ALS Ice Bucket Challenge?
Although not as exciting as watching Jimmy Fallon accept the challenge on live television, it is interesting to ponder the potential tax benefit of passing on the bucket of ice water being dumped on one’s head in exchange for donating $100 (or even more I am sure in the case of some donations). On the surface, it appears those passing on the challenge and donating cold-hard cash to the ALS would be entitled to a charitable donation to deduct on their 2014 income tax return (assuming they itemize their tax deductions).
However, could the IRS put these potential tax deductions on ice? It’s all in how one interprets the tax guidelines on charitable deductions. In general, monetary contributions to qualified charities entitle the donor to a tax deduction in the same amount (assuming, again, they itemize their tax deductions). The rule goes a step further to state the donation is reduced by any benefit received in return. This most often applies when a donor receives tickets to a charity dinner or makes a purchase at a charity auction; the donation is reduced by the fair market value of the tickets or items received.
This rule seems clear; however, the IRS has been successful in extreme cases in limiting charitable contributions by assigning value to “non-tangible” benefit received by the donor. The result has been that just because a donor does not receive goods, services, tickets, etc. from a donation, they still may need to reduce the value of their tax deduction.
That being the case, couldn’t one argue that there is some benefit to not soaking one’s self with a bucket of ice and water? Couldn’t the IRS measure the value of the spared embarrassment, shock to the body, and time involved in such a feat? To those that did not accept the challenge, there is conceivably some benefit. Why else would someone donate $100 for the opportunity to not soak themselves? Have they inadvertently reduced their potential tax deduction?
While it is highly unlikely that the IRS will weigh in on the topic and challenge these donations, the ALS Ice Bucket Challenge serves as a reminder that not all tax deductions are as cut-and-dry as they may first appear. As with all charitable donations, including those to ALS, proper documentation is essential to substantiate the tax deduction. Even though donations less than $250 require only a copy of the canceled check in your tax file, it is strongly recommended to also request a letter from the qualified charity documenting the amount of the donation and that no goods or services were received in return.
For questions or more discussion on the topic, contact an Anders tax advisor.