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Nonprofit Law/Tax-Deductible Donations

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Hi Harvey,

My 501(c)(3) organization specializes in producing artistic events as benefits for other non-profits and social causes.

In 2012, we produced an original musical theatre show.  All of our performers volunteered their time for both rehearsals and the performance (approx. 2 weeks of work).  At the time, we were not aware that "services" did not count as tax-deductible contributions, and we had hoped our performers could claim a deduction equal to what an actor would fairly be paid for such work in NYC.

Now that we're aware of that rule, I just want to ask if there is anyway at all they can claim a deduction.  For instance, could they say that they refused their pay as a way of donating to the 501(c)(3)?  We have no interest in being shady in this matter, and it is, in fact, true that the actors all voluntarily waived their fees for the benefit of our organization.  Is there any way to do this?  Or are the lines pretty black and white in this case: a voluntary service is JUST a service?

Many Thanks for your help!

Answer
Refusing pay from a 501(c)(3) organization is not different from donation of time, and, you already found out that services do not count as tax-deductible contributions.

26 U.S.C. 170 is available at:
and provides:
--- Start of Excerpt ---
(a) Allowance of deduction
(1) General rule
There shall be allowed as a deduction any charitable contribution (as defined in subsection (c)) payment of which is made within the taxable year. A charitable contribution shall be allowable as a deduction only if verified under regulations prescribed by the Secretary.
---End of Excerpt---
http://www.law.cornell.edu/uscode/text/26/170
The word "payment" would mean that, absent some other law or regulation, services are not covered under that section.  The regulations for 26 U.S.C. 170 are available at: 26 C.F.R. 1.170-1
http://www.law.cornell.edu/cfr/text/26/1.170A-1 and there is nothing there that would let us think otherwise. In fact, subsection (g) provides:
--- Start of Excerpt ---
No deduction is allowable under section 170 for a contribution of services. However, unreimbursed expenditures made incident to the rendition of services to an organization contributions to which are deductible may constitute a deductible contribution. For example, the cost of a uniform without general utility which is required to be worn in performing donated services is deductible. Similarly, out-of-pocket transportation expenses necessarily incurred in performing donated services are deductible. Reasonable expenditures for meals and lodging necessarily incurred while away from home in the course of performing donated services also are deductible. For the purposes of this paragraph, the phrase while away from home has the same meaning as that phrase is used for purposes of section 162 and the regulations thereunder.
---End of Excerpt---

You are welcome.

Harvey Mechanic, Attorney at Law -
Harvey108@hotmail.com
Member of New York Bar

P.S. This response is intended to be a general statement of law, should not be relied upon as legal advice and does not create an attorney/client relationship.  

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Harvey Mechanic

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I am an attorney and I volunteer time to answer general questions about U.S. Federal income tax issues of nonprofit 501(c)(3) public charities only. Those questions could be about establishing and maintaining legal requirements for such non-profit organizations in the United States, including Internal Revenue service filings and requirements. I will not be working on this free forum to answer questions about Nonprofit's possible unrelated or for-profit businesses or how to fill out forms. This forum is only for general questions about federal tax law, not as the law applies to your specific situation. If you do not make your question public then I will not be spending much of my donated time on answers that would not benefit the public. If you have other questions, please contact me at Harvey108@hotmail.com I will reply from my email. In any case, do not reveal confidential information to me until after I have contracted with you to provide personal legal services. My responses on this forum are intended to be general statements of law, should not be relied upon as legal advice, and do not create an attorney/client relationship. For me to consider your individual situation and how the law applies, I would need to gather extensive information about the situation. To search my previous answers you can do a Google search by "site:allexperts.com/q/nonprofit" without the quotes and then add your search terms before hitting enter.

Experience

I have been practicing law and especially the law of nonprofit organizations since 1990 when I was admitted to the New York Bar and I have maintained my status with the Bar since that time.

Education/Credentials

B.S. Columbia University in New York City, 1970

J.D. (Law Degree) Brooklyn Law School, 1990 -- Cum Laude.


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