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"The SCA, the IRS and You - A Guide to Charitable Donations for U.S. Members" by Mistress Tetchubah of Greenlake, O.L., O.P..

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NOTICE -

This article was added to this set of files, called Stefan's Florilegium, with the permission of the author.

These files are available on the Internet at: http://www.florilegium.org

While the author will likely give permission for this work to be reprinted in SCA type publications, please check with the author first or check for any permissions granted at the end of this file.

Thank you,

Mark S. Harris...AKA:..Stefan li Rous

stefan at florilegium.org

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This article was first published in Tournaments Illuminated, issue 187, 3rd Q 2013.

The SCA, the IRS and You -

A Guide to Charitable Donations for U.S. Members

by Mistress Tetchubah of Greenlake, O.L., O.P.

Most members in the U.S. are aware that the Society for Creative Anachronism is a nonprofit 501(c)(3) organization, and as such enjoys tax exempt status with the IRS and state taxing authorities. But what does that really mean for our U.S. members?

Over the many years that I have been participating in the SCA, while at the same time working as a tax professional, I have heard many myths, rumors and, more rarely, accurate information regarding what U.S. SCA members can or cannot deduct if they are itemizing deductions on their federal and/or state income tax returns. Unfortunately - at least for any members who may be audited by the IRS or other agency - the myths and rumors seem to outnumber the factual information by a wide margin. This article is intended to address some common situations encountered by U.S. SCA members, whether or not those situations create a charitable tax deduction, and what records may be required to substantiate that deduction if it gets audited. While this article is geared toward members of the SCA, the guidelines stated here are applicable to other U.S. organizations that you may be participating in, such as your local church or Girl Scout troop.

It is not possible to cover every situation in the scope of this article, so this only addresses common situations. Whether an item is deductible or not, and to what extent, is a matter of opinion and this article expresses my opinion based on nearly 30 years of experience in tax practice. You should always consult with a competent tax advisor such as a CPA, Enrolled Agent, or attorney if you have questions regarding specific donations you are contemplating.

NEVER DEDUCTIBLE

BEFORE WE START with the discussion of what is deductible, let's first discuss some common situations that are never deductible, but people think they should be:

The value of your time or talent: Regardless of how talented you are as a Laurel, or what your normal rate is for doing bookkeeping, when you are using this talent or time to contribute to the SCA you cannot claim a deduction for the value of that time or talent. Your time and talent is worthless to the IRS when it is used as a volunteer.

EXAMPLE 1: Little John is a CPA, and he normally charges $200/hour for bookkeeping services provided to his clients. John also works as his kingdom's exchequer, and this normally takes about 100 hours per year. John cannot deduct, as a charitable contribution, the $20,000 he would normally charge.

EXAMPLE 2: Alan o' Dale is a professional artist and also an illumination Laurel. Alan would normally charge $500 for one of his illuminations if he were selling it at a show. It typically costs Alan about $50 in materials costs to produce one of his works of art. If Alan contributes that artwork to the SCA, his deduction is limited to his materials cost of $50. He cannot deduct the amount he could have sold it for.

Both of these examples fall under what I refer to as the "no income/no deduction" rule. In these examples, the member is forgoing earning taxable income by contributing their services to the SCA instead. Since there is no "income" associated with the provision of these services, there is no corresponding allowable deduction.

Contributions to Individuals: Money or goods that are given to individuals for their personal use are not deductible. This is true regardless of the situation, be it financial problems, natural disasters, or health issues. This is why collections among the SCA for members who have hit hard times is always done outside of the SCA’s official business, as our nonprofit status does not allow us to give money to individuals. Money given from one member to another is considered a gift, and gifts are not tax deductible. This is also true for goods donated for the use of individuals, such as costumes made and given to Royalty. Again, this is considered to be a nondeductible gift from one member to another, as the SCA does not derive any direct benefit.

The cost of raffle, bingo, or lottery tickets: Despite the fact that many groups in the SCA hold raffles, whether they are basket raffles or raffles for single prizes, the cost of these tickets is not a donation. Raffles under the tax law are considered to be gambling, and are regulated by state laws. This means that your deductible losses (usually the cost of tickets) is limited to no more than the amount of gambling income you are reporting as taxable income. Since no SCA group that I am aware of issues a W-2G for raffle winners, the "income" in the form of winnings is not reported by members in 99.99999% of cases, and therefore the cost of the ticket is not deductible. If you have other gambling income that exceeds your losses, though, you can deduct the cost of your raffle tickets as additional gambling losses if you can prove the amount you spent.

Use of property or a portion of property: Another common mistake U.S. members make is thinking that they can take a deduction for letting their SCA group use a shed, room, portion of their garage, or similar situations. In nearly every case, they are letting the SCA use this space for free. The logic goes "I could be renting this out for $100/month, but I'm letting them use it for nothing so I'm going to deduct the $100 per month as a charitable contribution." However, this type of "donation" is considered to be "the right to use property" and is specifically not deductible under the regulations. This is because it is considered to be the contribution of less than an entire interest in the property, and contributions of a partial interest in property are not deductible.

EXAMPLE: Merlin owns and operates his own company, and operates this out of a large warehouse that he owns. The warehouse is divided into several spaces, including one room that Merlin allows his local barony to store their camping equipment and other supplies in. Merlin also lets them park the baronial trailer in his secure parking lot. If Merlin were to rent this space to someone else, he would charge them $200 a month for rent for the room and parking space. Merlin cannot take a charitable contribution for partial use of his property by the SCA.

BEFORE WE START, let's define the terms, particularly for people who are not familiar with income tax law. The rules vary for deduction based on whether or not the contribution you are claiming is in cash, noncash, or out-of-pocket expenses. All three types are deductible, but may be subject to limitations or conditions.

Cash Donations: This is simple - it is the amount of money, i.e. actual cash, that you donate to the organization.

Noncash Donations: Noncash donations are items that are donated to an organization that are not cash, such as donations of goods. One of the most common examples is donating clothing to an organization such as Goodwill or the Salvation Army.

Out-of-Pocket Expenses: Expenses you incur when you are serving a qualified organization, such as the SCA, as a volunteer can be deductible. However, these contributions must meet certain conditions, which will be discussed later.

Fair Market Value (FMV): Fair market value is generally defined as "the price at which goods or services are exchanged between a willing buyer and a willing seller, neither being under compulsion to buy or sell." FMV can fluctuate between sellers and buyers, depending on a variety of factors: think of the housing market and how that goes up and down, and you get an idea of how this works.

In general, the amount of money that you pay to a qualified charitable organization is deductible, as long as you are not receiving a benefit in exchange. Cash contributions can be made by cash, check, electronic funds transfers, credit cards, or debit cards. However, even something as simple as this can be subject to conditions. The donation must be made with the intent to make a donation, or in other words without the expectation of receiving back some sort of benefit either immediately or in the future. If a benefit is received, you may only deduct the amount paid in excess of the value of that benefit.

For example, Robin Hood is a U.S. SCA member and he decides to attend his local barony's event. The site fee for the event is $10, which he pays. Is this deductible? The answer is no, because the benefit Robin is receiving in exchange is admittance to the event. If he does not pay the site fee, he cannot attend. If Robin, however, paid the group $15 when the site fee was $10, and told them to "keep the change," his donation would be worth $5, the amount that he paid in excess of the benefit.

If Robin attends his local baronial council meeting, and the group does a "pass the hat" in order to raise funds, Robin can deduct the amount of cash he donates providing he has proof of what he donated. The IRS considers acceptable proof to be a bank record that shows: the name of the organization, the date of the donation, and the amount contributed, and may include a cancelled check, a bank or credit union statement - for funds transfers - or a credit card statement. it can also be a receipt from the organization showing the same information, i.e. the name of the group, date of donation, and the amount donated. If Robin just throws the money in the hat and has no proof of this, the donation is not deductible. This is true regardless of whether the donation is to the SCA for a "pass the hat" or the Salvation Army kettle at Christmas.

If Robin was being particularly generous, and donated $250 or more in cash, he must obtain an acknowledgement of the donation from the group to which he donated the money. All of the exchequers in the U.S. branches of the SCA should be able provide this type of receipt, when requested. This type of receipt must be written, and must contain not only the amount and date of the contribution, but also whether any goods or services were provided back to the donor, and what the value of those items is. This must be obtained by the date you file your tax return for the year of the contribution, or by the due date of the return, including any extensions. Having all of this information is critical - in a recent court case, the taxpayer lost over $20,000 in cash donations because the statement from his church did not state that no goods or services were provided back to the donor. No one disputed that the taxpayer had made the donations - he had all the cancelled checks and proof of payment. While the taxpayer was able to get a revised statement from the church during the audit, the Tax Court still disallowed the deduction as the corrected statement was received AFTER the return was filed, contrary to the regulations.

Cash donations that are less than $250, but add up to that amount for the entire year, only need to meet the lesser document requirement and a separate acknowledgement is not required. For example, if Robin donated $300 to the kingdom for new thrones, and made that donation all at the same time, he would need to get an acknowledgement from the kingdom exchequer of his donation. However, if Robin contributed $50 per month for six months to his group's operating expenses, he would only need to maintain a bank record or get a receipt.

Noncash contributions may be the single largest area where members can receive misinformation on what is or isn't tax deductible. While the idea may seem simple - I can deduct the value of the item I'm donating - the actual rules involved are anything but simple. What is the value? What is meant by "noncash"? Can I deduct the time I am spending? The IRS has a tiered system of documentation required to substantiate this kind of donation, depending on the amount being claimed for the contribution. There are four levels in the tiers, as follows:

· Less than $250,

· At least $250, but less than $500,

· At least $500, but not more than $5,000, or

· Over $5,000.

Generally, the IRS instructs you to determine the value by combining your deductions into similar items donated to the same organization in one year, and determine the value and what level it falls in, thus determining the level of substantiation needed. This can complicate things enormously, because it is not unusual for people to donate items of a similar nature but months apart to the same organization. Think of all those clothing donations you make to Goodwill - they would be considered similar items, and may need to be valued as a whole rather than on a per donation basis.

While the actual rules for the different tiers are too complicated to explain here, and many involve donations of appreciated property that we don't generally encounter in the SCA, the general guidelines for each tier are:

· For donations at less than $250, you must obtain a receipt from the organization showing the name of the organization, the date and location of the contribution, and a "reasonably detailed" description of the property. The IRS is increasingly taking the stand that "reasonably detailed" descriptions must list specifics, and will reduce contributions that only indicate "3 bags of clothing and 1 box of household goods" or similar descriptions. I recommend keeping lists of any items donated, particularly if you have owned the item for several years and are now donating it to something like a basket raffle.

· For donations at least $250 but less than $500, you need the items specified in #1, but also the receipt or acknowledgement from the organization must include a description of the property donated, and whether any goods or services were provided in exchange (and the value of those goods and services, if it applies).

· For donations at least $500 but not over $5,000, the acknowledgement must include the information specified in #2 and 3, and in addition you must maintain a record of how you acquired the property (purchase, creation, gift, inheritance, etc.), the approximate date you received or created the property, and the cost or other basis when it was originally acquired.

· Donations over $5,000 must have all the information mentioned previously, and additionally the IRS requires that the value of the donation be established by a qualified appraiser. Keep in mind that the appraisal requirement may be invoked by the IRS not only for a single donation, but also for multiple donations claimed in the same tax year for similar items. Therefore, if you donate clothing to the Salvation Army every month, and each donation is valued at $500, your total annual donation amount will be $6,000. While a $500 donation would only need to meet the requirements in #3 above, the IRS may determine that an appraisal should have been done because of the similar items claimed and the value exceeding $5,000. I have seen auditors require this, and of course it is long after the fact of the donation being made, and obtaining an appraisal would be impossible. Not to mention, the appraisal must be in the donor's hands either within 60 days of the donation date, or no later than the filing of the tax return.

So, what is the value of the donation you are making? For noncash donations, the

value is usually determined to be the lesser of the adjusted cost basis, or fair market value. This is particularly true for used items such as costumes and feastware. Also, special rules may apply to some donations, such as taxidermy property (seriously), which we will not cover in this article.

Adjusted cost is usually the amount you pay for an item, less a "depreciation"

factor. That factor will be different for different types of goods. For example, used costumes generally suffer greater "depreciation" because when you are wearing it, the clothing may be stained, ripped, or just generally worn out from washing. Ceramic plates, however, may not suffer any visual damage and therefore be worth close to their original cost, unless they are chipped or cracked. IRS does not allow donations for items such as clothing unless they are considered to be in "good" condition. If Sir Isley donates his used gambison to his local group, and it hasn't been washed in three years and stands up on its own, it would not be considered to be in "good" condition.

So, how does this apply to SCA members and the noncash items they may be donating? Let's look at some examples.

EXAMPLE 1: Lady Marian donates fabric to her shire's annual White Elephant sale. Marian purchased the fabric five years ago, and paid $5 per yard for the fabric at that time. She donates 10 yards to the shire. Since the fabric is in "new" condition, she can claim the fair market value for her noncash donation to the shire for the fabric. If the shire sold the fabric for $40, Marion's donation would be $40. If the shire sold the fabric for $60, her donation is worth $60. If Marion doesn't know what the shire sells it for, she should claim $50, her original cost.

EXAMPLE 2: Friar Tuck donates 15 of his old costumes to his local group's newcomers guild, so they can loan them out to newcomers. Tuck has lost a lot of weight and they are now all too large for him, but the costumes would be considered to be in good condition. Tuck spent over $500 in purchasing the costumes. However, because used costumes are similar to used clothing, he is limited to the fair market value for his donation, which would generally be equivalent to "thrift shop" value. That is very hard to define, exactly, but Tuck is probably okay in claiming about $10-20 per costume, depending on their construction and embellishments. It would probably be a good idea for Tuck to keep pictures of this donation.

There are some special rules for donations of "ordinary income" property as well. Ordinary income property is business inventory, works of art created by the donor, manuscripts created by the donor, and capital assets - which I will not discuss here. For ordinary income property, the amount you can deduct as a contribution is limited to the amount of its fair market value, less the amount that would be ordinary income had you sold it at fair market value. What this really means is that the deduction is going to be the cost you paid to purchase or create the property.

EXAMPLE 1: Gawain is a Knight and Laurel. He makes his modern living by making and selling armor both to the SCA, LARP players, and the movie industry. While much of his work is custom pieces ordered by particular clients, he also makes standard sizes of helmets, gauntlets, and leg braces for selling immediately when he attends wars, Renaissance fairs, and other events where he is vending. Gawain donates one of his standard helmets for a silent auction for his kingdom. The helmet costs him $75 to make, and he would normally sell it at retail for $300. Gawain's ordinary gain on a sale of this helmet is $225 ($300 - $75 = $225). Gawain's charitable deduction for the helmet is $75 ($300 - $225 = $75).

EXAMPLE 2: Morgaine is a silversmith and makes beautiful SCA-themed jewelry. She is asked to make 10 silver bracelets for the Kingdom, as largess for the Royals to hand out at the end of their reign. The kingdom can pay her $75 apiece for the bracelets, and this is what Morgaine spends on the silver. She would normally sell these bracelets for $180 each. Morgaine's charitable deduction is $0, because the.kingdom fully reimbursed her for her costs, and she cannot deduct the income she did not receive by donating the bracelets.

Although you cannot deduct the value of the services you may provide to the organization, you may be able to deduct some of the amounts you pay in providing those services. In order to be deductible, the expenses must be unreimbursed, directly related to providing the service, incurred only because you were providing the service, and not in the nature of personal, living, or family expenses.

Also, if a single expense exceeds the $250 threshold for additional documentation, you need to have that acknowledgement from the organization for that expense - see the earlier discussion on cash donations. This was clarified in a 2011 Tax Court case (Van Dusen v. Commissioner, 136 T.C. No. 515, 136 T.C. No. 25 (June 2, 2011)). The case involved a woman who was deducting her unreimbursed volunteer expenses while caring for foster cats in her home. The taxpayer was deducting veterinary services, pet supplies, cleaning supplies, and household utilities in relation to services she provided to a local feral cat group. The court allowed her all the expenses which were below $250 based on her records - she was an excellent recordkeeper and had receipts for everything, and took only a percentage of those based on owning two of her own cats in addition to the dozens of foster cats. However, some veterinary bills that exceeded $250 in one trip were disallowed because she did not obtain the necessary written acknowledgement from the feral cat organization, as required under the income tax regulations (Sec. 1.170A-13(f)(10)).

Out-of-pocket expenses that are deductible would include the cost of running an office, such as postage, envelopes, and paper. It can also include the cost of oil and gas to attend events at which you are providing services - more on that in a minute. It may include travel if you are performing services for an organization, but only if there is no significant element of personal pleasure, recreation, or vacation in the travel - we'll discuss this in a minute, too.

For example, if the local seneschal incurs postage expenses for mailing his monthly reports to the kingdom seneschal, he can deduct the cost of the postage and any office supplies used in the creation of those reports such as paper and envelopes. However, if he e-mails the report to his superior using his personal e-mail account, he deduct the cost of his Internet provider since the charitable use is minimal, and the cost of having Internet service at home would be considered a personal expense.

Car expenses: If you need to drive your car to provide services to the organization, you can either deduct the actual cost of gas and oil directly related to the use of the vehicle for that service, or claim a mileage deduction at the rate of 14 cents per mile. The cost of parking and tolls is also deductible. If you want to use the mileage rate, you must maintain a mileage log of the date you provided the service, the service provided, and the mileage incurred. I normally recommend to anyone wishing to use the actual cost of gas, that they fill their tank just before leaving on their trip, and then refill it again immediately after returning home - regardless of whether they need gas or not. This will give you the actual gas cost of making that specific trip. The IRS is not particularly lenient when it comes to "ballpark" estimates of mileage incurred, and will generally not allow this deduction if good records are not maintained.

The key to being able to deduct out-of-pocket expenses is that the expense must be incurred in providing actual services to the organization. Even if you enjoy providing those services, that does not necessarily disqualify you from taking a deduction, however, it may have an impact in some cases.

EXAMPLE 1: Arthur and Guenivere are reigning royalty. They drive to many events within their kingdom during their reign, and the kingdom reimburses them at 14 cents per mile. However, Art & Gwen drive a Chevy Suburban so they can tow the kingdom regalia trailer with them, and their actual gas cost exceeds the reimbursement. They can deduct their actual cost of gas, providing they maintain good records on their costs and mileage.

EXAMPLE 2: Arthur and Guenivere, while king and queen, attend Pennsic War. In order to make this trip, they have to kennel their three dogs while they are gone and this costs them $1,000. The cost of kenneling their dogs is not deductible, as it is considered to be a personal expense.

Other Rules and Warnings

Travel: Generally, you can deduct the cost of travel incurred while you are away from home, defined as overnight, performing services for a charitable organization. Travel costs include airfare or rail or bus tickets, meals and lodging, out-of-pocket expenses for your car, and taxis and other transportation between the airport, train or bus station and your hotel. However, the travel expenses are only deductible if there is no significant element of personal pleasure, vacation, or recreation involved in the travel. In order to deduct travel, you must be on duty in a genuine and substantial sense throughout the trip. If the duties are only nominal, or for a significant part of the trip you do not have any duties, the travel is not deductible.

EXAMPLE 1: Arthur and Guenivere also travel to France while they are on the throne to attend Drachenwald Coronation, since Arthur's former squire is going to be king there. They spend a week in France, attending Coronation and sightseeing. The cost of this trip is not deductible.

EXAMPLE 2: Cei is the event steward for a major war. A week before the war, Cei travels to the war site to supervise the setup of the camp, do layout work, and direct vendors and merchants to where they need to go. During the war, Cei participates in the fighting and parties, and generally enjoys being at the war. While he is on call in case he is needed, this doesn't stop him from having fun. He stays an extra three days after the event ends to oversee the breakdown and cleanup of the site, and transports some of the equipment back to storage. Cei can take a deduction for any travel costs incurred.

EXAMPLE 3: Lancelot is his kingdom's seneschal. The Society seneschal convenes a meeting of all kingdom seneschals over a three day weekend in Orlando, Florida. Lancelot's kingdom pays for his hotel and airfare, and Lance pays for his meals himself. On the last day of the trip, he goes to Disney World with some of the other seneschals. Lancelot can deduct the cost of his meals during this trip, as he is the "official" representative of the kingdom to this meeting, but he cannot deduct the cost of his Disney World admission.

If the SCA group pays you a per diem - i.e., per day - allowance to cover reasonable travel expenses, including meals and lodging, you must include in income any amount that the allowance exceeds your actual costs. You can deduct any costs that are in excess of the allowance.

Just because you are a member and participating in the SCA does not mean you can deduct every dime you spend in your participation. In order to be deductible, the rule to keep in mind is: are you spending that money in a way that meaningfully benefits the organization, and not just yourself? Volunteer expenses are deductible if they are incurred while providing services, and attending an event is not a service. Clearly, officers, territorial barons and baronesses, and royalty are more likely to have deductible volunteer expenses, but other members who are doing such things as acting as event steward, or cooking a feast, or running gate, may also be incurring costs for which the group doesn't normally provide reimbursement and which may be claimed as a charitable deduction. While the group may be paying for the food for the feast, they are probably not paying the head cook for the mileage incurred in shopping for that food, and that would be deductible by the cook.

Not every incidental expense incurred by a taxpayer in connection with a charitable activity is deductible. "Expenses incurred in the rendition of services to a qualified charitable organization may, and often do, have a dual character. They may benefit both the charity and the taxpayer." (Seed v. Commissioner, 57 T.C. 265, 276 (1971)) If the taxpayer or someone other than the charity derives a substantial and direct benefit, which is personal, the charitable contribution is not allowed. In Mr. Seed's case, the mileage deduction he claimed for attending choir practice at his local church was not allowed, as the Court determined that his performance in the choir was a form of religious worship, and therefore personal.

Expenses that are considered to be personal, living or family expenses will never qualify as charitable contributions. For example, spending money on meals while traveling for the SCA in a meaningful volunteer sense is deductible, providing it is necessary for you to be away from home overnight while providing the services - see my prior examples for Cei and Lancelot. However, buying yourself lunch at an event and then going home at the end of the day is not a deductible meal cost - you would have had to eat lunch anyway. And the IRS is not going to buy an argument that you only eat meals at events.

Garb or costumes also are not generally deductible expenses. While the SCA generally asks members to make an attempt at Society period clothing, whatever your period may happen to be, costumes at events are not unlike wearing clothes anywhere else and unless you live in a nudist colony, are a requirement for leaving the house. Again, this expense would be considered a personal expense.

As always, when it comes to income taxes you can ask five different tax experts and get five different opinions. This article is meant as a guideline, it does not qualify as "substantial authority," and should not be used as justification for a deduction, should you be audited. You should consult with your tax advisor before taking any deductions, whether they are related to your activities in the SCA or not. And ALWAYS KEEP THE RECEIPTS. •

AUTHOR

CAROLYN RICHARDSON (EA, MBA) lives in Southern California with her husband and cat. With over 30 years of tax experience, she has worked for IRS, as a tax software programmer for CCH, and at various CPA firms. She currently is the manager of the education and research department for TaxAudit.com. TETCHUBAII OF GREENLAKE (OL, OP) is a 16th C Englishwoman who eloped to Florence, Italy with an itinerant artist. Widowed at an early age, she now supports herself as a calligrapher and illuminator in Florence because she likes the weather better than damp, cold England.

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Copyright 2013,2017 by Carolyn Richardson. <tetchubah at gmail.com>. Permission is granted for republication in SCA-related publications, provided the author is credited. Addresses change, but a reasonable attempt should be made to ensure that the author is notified of the publication and if possible receives a copy.

If this article is reprinted in a publication, please place a notice in the publication that you found this article in the Florilegium. I would also appreciate an email to myself, so that I can track which articles are being reprinted. Thanks. -Stefan.