Wednesday, November 13, 2019
Determining Annual Dues Deductibility for Memberships
Posted by Katy Brown
When members purchase annual memberships, it can be difficult to determine what portion of the membership dues may be deductible as charitable contributions. However, it is your organization’s responsibility to determine the approximate fair market value (FMV) the donor receives in exchange for their membership purchase and to notify the donor of the amount.
The IRS has not provided any recent guidance, but we can still rely on some relatively old revenue procedures that outline a safe harbor, and each organization’s situation can be analyzed based on its own facts and circumstances. Here are some general guidelines on how to determine the deductibility of your members’ annual memberships.
- For memberships costing $75 or less, the entire membership payment may be treated as deductible if the only benefits received are “insubstantial,” such as:
- Free or discounted admission or parking
- Preferred access to goods or services
- Discounts on goods or services
- “Low-cost” articles (token items like mugs, calendars, t-shirts, etc.) i
- Access to members-only events as long as the cost per person is less than $11.33 (adjusted for inflation for 2019) ii
- Cash and cash equivalents are never insubstantial benefits. These MUST be treated as nondeductible to members. An example would be a $15 gift card to the museum shop.
- If membership levels above $75 are also offered, with no additional benefits provided above those available to the lower membership levels, all additional amounts paid may be treated as deductible contributions.
- For higher membership levels offering more substantial benefits, you must analyze and estimate the FMV received by the donor, not the cost of providing the benefit. If the additional benefits are “substantial,” they must be considered for non-deductibility on a case-by-case basis.
- If a donor makes a large pledge that is payable over multiple years, you should recognize the entire pledge amount as the amount paid for the membership (as opposed to considering only current-year cash payments).
- On your Form 990, you should report the deductible portion of membership dues as charitable contributions, and the FMV exchange portion should be reported as program service revenue.
If you have questions on your particular situation or would like help reviewing your current arrangements, please contact us.
i IRC Section 513(h)(2) ties the “low cost” amount for each year to inflation
ii Treas. Regs. 170A-13(f)(8) and Rev. Proc. 90-12
Katy is an exempt organizations specialist with 10 years of experience in the tax field. She has experience working with exempt organizations in a variety of capacities including consulting on formation, board governance and ongoing compliance requirements. Katy has also been brought on as an outside service provider of comprehensive tax compliance services.
She is a member of the California Society of CPAs, the AICPA and the Center for Volunteerism and Nonprofit Leadership, and she currently serves as a board member for the Clifford Brown Jazz Foundation. Katy earned a Bachelor of Arts from George Mason University, a Master of Arts from The University of Arizona and a Master of Science in Taxation from Golden Gate University.