AAM Government Affairs is issuing a bulletin to institutional members
regarding rules recently issued by the IRS.  The following text will be
of concern mainly to institution directors and development officers.
(The rest of you should avoid reading it except to cure insomnia.)
Following is the text:

AAM Government Affairs Bulletin

IRS Issues Final Rules:                 Important Message for Museum Directors
                                                   and Development Officers

re:  SUBSTANTIATION of Contributions and
Disclosure of QUID PRO QUO Contributions


On Dec. 13, 1996, the IRS issued final rules providing guidance on
requirements imposed on taxpayers and charities by the Omnibus Budget
Reconciliation Act of 1993 (OBRA).  Under OBRA, taxpayers must obtain
written substantiation from charities for contri butions of $250 or more;
and charities must inform taxpayers of the value of gifts or benefits
conferred in exchange for contributions in excess of $75. (Ref:  26 CFR
Parts 1 and 602 [TD 8690] RIN-1545-AS94)

The final rules vary minimally from temporary regulations previously
published.  However, they do provide answers to several questions that had
been raised about the temporary regulations.  Also, they made five minor
substantive changes to the temporary r egulations:

1.  Corporate Matching Gifts.  In response to a question, the final rules
make clear that valid substantiation of corporate "matching gifts" must
occur after the corporate match has been received.  A letter notifying a
corporation of an employee's gift an d thanking it in advance for the
expected corporate match is not a valid substantiation, because
substantiation cannot be completed until after a gift has actually been
made (i.e., received).

2.  Out-of-Pocket Expenses by Volunteers.  The proposed regulations
allowed volunteers to substantiate their contributions of out-of-pocket
expenses with a statement from the charity describing the services and the
date they were performed.  The final rul es eliminate the requirement that
the statement include the date of their services.

3.  Purchase of an Annuity.  When a donor purchases an annuity from a
charity and claims a deduction of $250 or more, the acknowledgment must
state whether any goods or services in addition to the annuity were
provided to the taxpayer, but it need not inc lude a good faith estimate
of the value of the annuity.

4.  Contributions to a Split-Interest Trust.  The final rules are modified
to provide that the substantiation requirements do not apply to gifts made
to all three types of "charitable remainder unitrusts"; the proposed
regulations had exempted only one ty pe.  Regarding gifts to "pooled
income funds," the final rules have been modified to provide that
acknowledgment by the charity that maintains the fund must include a
statement that the gift was made to the fund and whether or not a quid pro
quo was provi ded to the donor, but it need not include an estimate of the
value of the income interest in the pooled income fund.

5.  Benefits Provided to Employees of Corporate Donors.  The temporary
regulations made clear that charities are not required to furnish a value
for benefits provided to employees of corporate donors.  The final rules
extend this exemption with respect to benefits provided to "employees"
who are partners in a partnership, such as lawyers in a law practice.

For the rest, the final rules reiterate guidance provided both by the
temporary regulations and many other rulings which are reproduced and
summarized in the first chapter of the AAM publication "IRS and
Congressional Actions on Museum Tax Issues."  However, some additional
guidance or clarification includes:

A.  Donor Expectation Based on Facts and Circumstances.  When a donor
makes a contribution in response to an express promise of a benefit, the
donor generally has an expectation of a quid pro quo.  The final rules say
that in the absence of such a promise , a donor "may also have an
expectation of a quid pro quo when the donor makes a contribution with the
knowledge that the charitable donee has conferred a benefit on other
donors making comparable contributions."  The standard is based on the
"facts and c ircumstances" of individual cases.  (Clearly, if a museum is
in the habit of conferring benefits on certain kinds of donors, it would
be in the museum's and the donor's interest to acknowledge them up front.)

B.  Quid Pro Quo Provided Subsequent to Year of Gift.  When a payment is
made but the quid pro quo is received in a subsequent year, the charitable
deduction is nevertheless limited to the amount, if any, by which the
payment exceeds the value of those go ods or services, regardless of when
the donor receives the benefit.

C.  Goods or Services of Insubstantial Value Disregarded.  The final rules
make clear that when a donee provides a donor with insubstantial goods or
services (as previously defined by regulation), written acknowledgment
"may indicate that no goods or serv ices were provided in exchange for the
donor's payment."  In other words, even though the donor got something,
it's OK to say he didn't.

D.  Frequently Used Membership Benefits.  Some commenters said that this
term is vague and imprecise.  The final rules reject this contention,
stating that the temporary rules provide sufficient guidance; in effect,
charities are asked to exercise their j udgment.

E.  Multiple Contributions.  The final rules clarify that for multiple
contributions of $250 or more to one charity, one acknowledgment that
reflects the total amount of the taxpayer's contributions for the year is
sufficient.

The final rules have been printed in the Dec. 16 edition of the Federal
Register, which is often available at public libraries; copies also are
available through AAM Government Affairs.

December 27, 1996               AAM Government Affairs
202-289-9125                    email:  [log in to unmask]
FAX 289-6578                               [log in to unmask]

NOTE:  The regs can be accessed electronically by going to the General
Printing Office web page:

http://www.access.gpo.gov/su_docs/aces/aaces002.html When you get there,
select Federal Register Vol. 61 (1996) as the data base you want to
search, and enter "TD 8690" as your search term.  This will pull up the
regs, which you can print out or download.

Andy Finch
AAM Government Affairs
[log in to unmask]