Did you know that you can offer your families the tax benefit of a “charitable contribution”?
Yes, it’s true … under some circumstances; earnings from your scrip program may entitle your participants to a charitable contribution deduction on their itemized 1040 form. There are a few important steps to follow, so read on and learn more …
For years, our NPO’s have had questions about various tax issues concerning the revenue generated by their scrip programs. At the request of our customers, Great Lakes Scrip Center enlisted the aid of one of our nation’s largest and most respected accounting and tax firms. They researched all we knew about scrip fundraising, and sought guidance from the Internal Revenue Service in the form of a Private Letter Ruling (PLR) on behalf of a real scrip-using family.
Private Letter rulings are written decisions by the Internal Revenue Service
in response to taxpayer requests for guidance. For our customers, we wanted
clarification that specifically applied to scrip programs. The result was
Private Letter Ruling (PLR) 118535-09, published on our website in July of
2009.
Scrip rebates are not considered
gross income. Giving these rebates to
a non profit can be the same as
a cash donation.
This PLR first clarified the revenue generated from a scrip program. It states that; “Funds generated in a scrip program are rebates from the purchase of scrip and, as such, are not considered gross income to the participants.” It further defines rebates as “cash back to the taxpayer”, or in our case, scrip-using families.
This declaration from the IRS – that scrip program earnings are a rebate, has positive implications for our customers. It means that if a participating scrip family CHOOSES to donate all or part of their rebate to their NPO, they can claim it on their taxes as a charitable contribution. But in order for a tax deduction to be allowed, all of these conditions must be met:
- Participant must not be receiving goods or services in
exchange for contribution – this includes tuition reduction, fee offset,
field trip payments, etc.
- Participants must have clearly CHOSEN to allow the NPO to
retain the funds and there MUST be a written, SIGNED agreement.
- NPO must provide an annual acknowledgement of the
contribution for the participant to document their charitable deduction
claim on taxes.
- Required payments are not considered charitable
contributions, and therefore not deductible. (ie: if your organization
requires participant to attain a certain rebate amount, or they specify that
a certain percentage has to go to them off the top.)
If, for example, your NPO is a church with a building project, or you are trying to encourage members of your organization of any kind to participate in your program, then this is the tool to gently “nudge” them toward participating.
For families already participating, this tax benefit is a nice bonus. But for those not participating in the program, this might be the incentive needed to get them motivated. It is a win-win situation. Your NPO benefits from the rebate money donated, and the scrip participants benefit by claiming the contribution on their taxes.
Participating families must willingly give their rebates to the NPO as part of their scrip program with a signed written agreement in order to claim these funds as a charitable contribution. Great Lakes Scrip Center has a Model
Scrip Program Agreement that can be downloaded and used for this purpose. Please note that the agreement indicates they could receive their rebate back in cash. This is necessary to clearly identify that they are choosing to donate it to you. We’re confident that your supporters will gladly give it to your group, and choose to do so. Remember, if the participating families are getting something in return for their contribution, like tuition reimbursement, those funds are not considered a charitable contribution. Families can only get a charitable deduction for funds that are given to the non-profit with nothing given in return.
Families must willing agree to in
writing to give their rebates to your
non profit organization, and they cannot
receive goods or services in return.
Both ShopWithScrip.com and SCRIPWARE™ generate reports that can be printed out to assist the coordinator in knowing how much each family has given and how much they can claim on their taxes. It makes the whole process much easier because it is automatically accrued throughout the year for you. Annually, the NPO must provide each family with a written acknowledgement of that year’s contributions.
For more detailed information about scrip related tax issues,
click
here. If you have further questions at it pertains to your organization specifically, we suggest that you contact your CPA or other tax professional with your questions.
Please note that you are not required to offer your participants this deduction, or do any of the steps necessary to do so. If your program is operated substantially all by volunteers, and keeps 100% of the rebate, you should not have any tax issues, We simply want to bring your attention to this opportunity to enhance your scrip program.
Download The Model Scrip Program Agreement
Note: This publication was produced by Great Lakes Scrip
Center, LLC, and is intended for the sole use of its non-profit customers and
potential customers. Reproduction of this by anyone other than those customers,
for their organization’s expressed use, is prohibited. Great Lakes Scrip Center,
LLC has no specific tax expertise other than that gathered while researching
this topic on behalf of our non-profit customers. Great Lakes Scrip Center
encourages its customers to seek the assistance of their local accounting and
tax experts for specific advice on these and other tax questions.