Silent Auction Policies and Procedures
UA/PPS No. 03.03 (01.05)
Issue No. 1
Effective Date: 8/01/2010
Next Review Date: 2/01/2017 (E7Y)
Sr. Reviewer: Director of Donor Relations
Silent auctions are chosen frequently to raise funds to benefit programs and scholarships. There are many IRS rules and standards to follow to ensure compliance while realizing there may be a tax-deductible opportunity for our donors.
Items contributed for an auction may be tax-deductible. There are two underlying rules:
The item must be a gift in the eyes of the IRS; this excludes non-deductible items or services recognized as either a service or partial interest. Examples of non-deductible services include but are not limited to complimentary massages, legal advice, tax preparation, etc. Partial interest gifts include the use of a vacation home, free rounds of golf, free airline tickets, or hotel accommodations/vacation packages.
The item must actually sell at the auction. Receipts are not provided for donated items until after the conclusion of the auction. Those Receipts describe, without indicating value, what was given. The donor must complete Auction Donation Form.
Donated auction items fall under the IRS definition for unrelated use property. Any contributed property not put into service by the nonprofit organization falls under this category. While the conversion of property to cash that we can spend is a benefit to Texas State, the law requires a reduction in a donor’s deduction for unrelated use property. Donors must be advised of the unrelated aspect of their donation when soliciting auction items.
Donors of items estimated to be worth $500 or must be advised of their possible requirement to file IRS Form 8283 with their itemized tax return. They should be encouraged to seek tax guidance and, if required, obtain a copy of the latest version of this form, complete their required portion, and deliver to us for signature and return.
Donors of items estimated to be worth $5,000 or more must be advised of their possible requirement to obtain the signature of a qualified appraiser on their 8283 prior to delivery of the 8283 to Texas State for signature. The donor is also to be informed of the further requirement to file Form 8282 with the IRS whenever we sell property of this level within three years of the donation, as will likely be true for donated auction items. The Office of Donor Relations is responsible for filing this form.
In order to provide an opportunity to prospective bidders to claim a deduction, bidders must readily know the fair market value (FMV) of each auction item. An auction program or descriptions on the bid sheets should state the FMV of each item.
Provided the winning bidder knew the FMV in advance of the auction, they will be able to claim a deduction for any amount paid in excess of the FMV. The Office of Donor Relations will provide a receipt reflecting this net deductible amount.
There can be no listing of an item as “priceless,” unless there is no desire or intent to provide the winning bidder with a possible tax-deduction. In such a case, the winning bid establishes the value and, thus, the bidder receives something of equal value for their payment. Please make all efforts to identify the FMV of auction items.
Many groups will often tie a raffle or door prizes to auction events. The IRS considers these games of chance. Therefore, any admission price or purchase that qualifies an attendee for such a game of chance disqualifies any portion of that fee for a deduction.
The IRS publishes few specific guidelines pertaining to "charity auctions". A good article on the topic may be found at the following link.
PROCEDURE FOR PROCESSING OF GIFTS
- Silent Auction proceeds will be forwarded immediately to the Office of Donor Relations, together with the bid sheets and an auction program which reflects the fair market value of the item. The Office of Donor Relations will process the gift in accordance with procedures agreed upon with them.
REVIEWERS OF THIS PPS
Reviewers of this PPS include the following:
Position Date Director of Donor Relations February 1 E7Y
This PPS has been approved by the following individuals in their official capacities and represents Texas State University Advancement policy and procedure from the date of this document until superseded.
Director, Donor Relations; senior reviewer of this PPS
Assistant Vice President, University Advancement for Development
Vice President for University Advancement