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Wisdom & Insight
Is there a way to still provide a charitable contribution deduction for VolunTourists?
In this follow up to our first segment on Internal Revenue Service (IRS) Publication 526, the discussion will focus on the personal and business-related tax deductible options for VolunTourism products and services. (Please note: These remarks only apply to the United States Tax Code. Other countries may have similar options, but these are not presented in this article.)
According to Mr. Bateman (Operator #7515702) of the IRS, personal deductions for VolunTourism products and services are limited to those that represent the direct contribution to the qualified charitable organization AND do not pose any personal benefit to the individual.
For example, if it is determined that the cost of construction materials, coordination for a project, and a meal as offered by a qualified nonprofit organization equals $50, then the nonprofit organization must provide the fair market value for the meal to you (a voluntourist or voluntourist representative). If, in continuing with our example, the fair market value of the meal is $5, because this is a personal benefit to you (a voluntourist), you (a voluntourist) cannot deduct the $5. You (a voluntourist) can, however, deduct the other $45 – if, and only if, the organization is a qualified organization - a 501 (c)(3) nonprofit organization.
The next question, of course, is:
Can a tour operator, hotel, or other business that is providing VolunTourism products and services for its clients receive a tax deduction for payments to a qualified charitable organization that acts as a “vendor” to supply the experience to would-be VolunTourists?
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Basically, the question being addressed here is if you as a tour operator or supplier decide that you want to pay for the materials, services, meal, etc., in advance, can you (a tour operator or supplier) identify this payment as a tax deductible contribution?
First, I contacted the IRS about this question. Because of its unique nature, they suggested that I seek help from a tax attorney that specializes in corporate deductions.
Thus, I continued my research.
In an article that appeared in the June-July 2005 issue of The National Public Accountant entitled “The right thing: making charitable contributions,” Phyllis Bernstein wrote,
“The rewards of giving to charity are many. For starters, clients control when and how to reduce a tax bill and effectively reduce the actual cost of the gift. Cash donations, as long as the actual amount of the donation is substantiated, will not result in an IRS challenge.”
This sounded promising. But…
In further research, I ventured to Give.org, the website for the Better Business Bureau Wise Giving Alliance. According to the website:
“Corporations may deduct all contributions to 501(c)(3) organizations (regardless of foundation status) up to an amount normally equal to 10% of their taxable income.”
I placed a call to the BBB Wise Giving Alliance to ask the specific question above. I received a return call from Mr. Bennett Weiner, Chief Operating Officer of the BBB Wise Giving Alliance, a charity monitoring organization. I presented the example to Mr. Weiner as follows:
A tour operator hosts 20 persons on a trip for which they are charging $1000. On one or two days of this seven-day trip, the participants will be volunteering at a local charitable organization. They will be building a foundation for a school, having lunch, and the nonprofit organization will coordinate these activities. According to the IRS, the person may deduct the cost of the materials, the coordination, and the cost of the meal, above and beyond the fair market value.
But let’s say that the tour operator, instead of wanting to be responsible for the administration of tax deductible letters to its clients, decides to offer the charity a donation for its services. Can the tour operator deduct the amount of the cash payment?
“No. The business is receiving benefit for services from the charitable organization. In fact, you could argue that the tour operator is able to ‘sell’ the trip to clients because of the charitable nature of the experience.”
Of course, he was quick to admit that he is not a tax attorney, but in his opinion this could not fall into the category of a tax deduction for the tour operator. His parting advice, “Consult a tax attorney.”
As I have contacted at least one corporate tax attorney and he asked me for a $5000 retainer for his services to research the question, I will defer to each of you to seek the advice of your own attorney.
VolunTourism poses a relatively straightforward personal IRS tax deduction for VolunTourists as long as the organization is a qualified charitable organization. It may be difficult for a VolunTourism operator to identify a qualified charitable organization in an international setting, however. Most international grassroots organizations, including schools, orphanages, clinics, etc., will not fall under the category of a qualified charitable organization.
If you want to be able to offer the tax deductible option to your clients, it would be in your best interest to determine if these entities have an overarching NGO sponsor that does have qualified charitable organization status. This may take time and effort on your part, but it will certainly be worth the investment.
After conducting this reasearch, I now have a few questions for the nonprofit organizations that offer "volunteer vacations." I can more fully understand and appreciate why they have not traditionally offered tourism-related activities to their clients. It creates ambiguity as to whether the experience is tax-deductible or not. There is more opportunity for learning in this area, for all of us!
We may continue to explore this issue by reviewing the charitable contributions’ options for other countries around the world including the UK, Canada, Australia, Germany, and others that have demonstrated an interest in VolunTourism.
For further information on Publication 526, visit the IRS website or download the form as a PDF document.
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