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FIB - Scams 101 - Ye Olde Archives
Posted By: The Roadie <wcarton@flash.net> In Response To: Any problems with this? Please critique (Cindy)
Monday, 21 March 2005, at 6:09 p.m.
> Soccer organization/youth group/(fill in your non-profit of choice)
> donates 20-30 unwanted household items of a certain minimum value to a
> home-owned business, which then lists the items on eBay, and splits the
> proceeds with aforementioned non-profit.
For the non-profit to be a qualified organization to accept donated articles, and have them be deductable at any value, the non-profit has to be registered with the IRS.
You can search for registered organizations online here:
http://apps.irs.gov/app/pub78
A discussion is here:
http://www.irs.gov/charities/article/0,,id=96136,00.html
There are requirements placed on the organization discussed in this document:
http://www.irs.gov/pub/irs-pdf/p1771.pdf
My impression is that a lot of local soccer leagues just don't follow all the rules due to volunteer limitations, even though they call themselves non-profit. They simply aren't able to file all the right paperwork with the right agencies, and run happily along because nobody who donates to them has ever been fully audited.
Ask the organizations if they can produce their IRS letter declaring them to be tax-exempt. If they can, then you can proceed to the next question.
> Are there any legal issues with this involving the non-profit? Since the
> items are donated to the business (albeit for the eventual purpose of
> resale), does that also constitute a tax write-off for the group's members
> who donate items? This is being promoted as a painless fundraiser. Any
> comments are appreciated.
Basically, nothing can be "donated" to a profit-making business and have it be deductable to the donor. The business is not qualified to accept deductable donations. So what's left is to examine the valuation of the articles when they were originally donated to the non-profit.
IRS Publication 561 discusses the valuation of donated property. http://www.irs.gov/publications/p561/ar02.html
The typical valuation that won't get you in trouble is FMV:
"Fair market value. Fair market value (FMV) is the price that property would sell for on the open market. It is the price that would be agreed on between a willing buyer and a willing seller, with neither being required to act, and both having reasonable knowledge of the relevant facts. "
So as long as the original donor deducts no more than the final selling price, MINUS the commission given to the EBay-agent business, they should be totally safe. That's what the non-profit gets as proceeds from the ultimate sale.
To deduct the full selling price (pretending the commissioned agent didn't exist) would be equivalent to saying that the non-profit had a paid relationship with the Ebay agent business to dispose of their excess assets, and that might jeopardize their non-profit status. But I'm just guessing.
Given the IRS' new enthusiasm to eliminate excessive valuations in the charitable automobile donation industry, you're right to be cautious.
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