When you gather items for a silent auction, you will likely create your own internal list that provides you with the value of each item. It’s important to track the value of your gathered items to give your organization an idea of what kind of bids to expect — especially when it comes to high end items and trip packages. The key here is to keep this list internal during your event. Instead, share with your donors on their receipt, the fair market value or if that is unavailable, the good faith estimate.
As per IRS Publication 1771, in order for a donor to claim a tax deduction at a charity event, they must obtain "a contemporaneous, written acknowledgment of the contribution from the recipient organization."
"An organization that does not acknowledge a contribution incurs no penalty; but, without a written acknowledgment, the donor cannot claim the tax deduction. Although it’s a donor’s responsibility to obtain a written acknowledgment, an organization can assist a donor by providing a timely, written statement containing:
1. the name of organization
2. the amount of cash contribution
3. a description (but not the value) of non-cash contribution
4. a statement that no goods or services were provided by the organization in return for the contribution, if that was the case
5. a description and good faith estimate of the value of goods or services, if any, that an organization provided in return for the contribution 3
6. a statement that goods or services, if any, that an organization provided in return for the contribution consisted entirely of intangible religious benefits (described later in this publication), if that was the case
This next part of the publication specifies required "Written Disclosure".
" A required written disclosure statement must:
-Inform a donor that the amount of the contribution that is deductible for federal income tax purposes is limited to the excess of money (and the fair market value of property other than money) contributed by the donor over the value of goods or services provided by the organization
-Provide a donor with a good-faith estimate of the fair market value of the goods or services.
Next comes the details as to when the Written Disclosure must be given:
"An organization must furnish a disclosure statement in connection with either the solicitation or the receipt of the quid pro quo contribution. The statement must be in writing and must be made in a manner that is likely to come to the attention of the donor. For example, a disclosure in small print within a larger document might not meet this requirement."
The IRS Publication 1771 regarding Charitable Contributions go into exceptions and we recommend to all of our nonprofit partners to familiarize themselves and speak with a tax professional if they have any questions.
Sharing the value of an item on a silent auction bid sheet is a common error at many fundraising events. Fortunately, we at AmFund have years of experience and insight to share with our readers. Once you finish reading this blog page, you will see exactly why this method of sharing item values during your silent auction is NOT a good idea.
Avoid a bargain basement sale
If your silent auction feels more like a bargain basement sale, something went wrong along the way. A silent auction is not the place to go bargain hunting. Remember, guests are there to help your organization raise much needed funds. People should bid using their emotions. They should truly be interested in the item while simultaneously wanting to help your organization.
If things start to feel like a bargain basement sale, the issue at hand usually stems back to the sharing of item values with guests during the auction. If buyers are told the value of an item on the sheet, they will rarely bid up to the full value of the item. Even worse, it’s rare for anyone to bid any higher than the stated value. Remember, you want your guests' bid to answer an emotional need. The value of that emotional need will always be higher than a cold, hard cash value.
Let's take a look at an example
Let's say you have a piece of jewelry that is valued at $200. If you share this value with your guests, they automatically go into bargain-mode. For many of us, it’s human instinct to get the best deal possible when shopping for anything. Let’s face it, nobody wants to feel like they overpaid for something, no matter what the situation. In this case, bids are likely going to come in within the $100 to $150 range — well under the actual value.
Take away this bargain-mode by not sharing the value on your silent auction bid sheets. As mentioned earlier, let your guests bid with their emotions. In the end, your guests are there to support your organization. Without listing the value of the jewelry, you are more likely to get someone to bid well above the value of the jewelry simply because this person likes the item and wants to help your cause. It’s a bid built on emotion.
One small change in the execution of your silent auction can make a huge difference in the outcome of your fundraising event. For more tips to running a successful event, reach out to us at AmFund.