The IRS generally presumes that these payments are not charitable contributions when one or more of the following factors are present: (1) the existence of a contract under which the parent agrees to make a “contribution” and that contains provisions ensuring admission of the parent's child, (2) a plan allowing parents either to pay tuition or to make “contributions” in exchange for schooling, (3) the earmarking of a contribution for the direct benefit of a particular student, and (4) the otherwise unexplained denial of admission or of readmission to a school of children of parents who are financially able but do not contribute to the school.
Moreover, in other cases, although no single factor may be determinative, a combination of several factors may indicate that a payment is not a charitable contribution. In these cases, both “economic and noneconomic pressures placed upon parents” are taken into account.88
The factors that the IRS will ordinarily take into consideration, but will not limit itself to, are: (1) the absence of a significant tuition charge, (2) substantial or unusual pressure to contribute applied to parents of children attending a school, (3) contribution appeals made as part of the admissions or enrollment process, (4) the absence of significant potential sources of revenue for operating the school other than contributions by parents of children attending the school, and (5) other factors suggesting that a contribution policy has been created as a means of avoiding the characterization of payments as tuition.
Nonetheless, the IRS concluded: “However, if a combination of such factors is not present, payments by a parent [to a school attended by a child of the parent] will normally constitute deductible contributions, even if the actual cost of educating the child exceeds the amount of any tuition charged for the child's education.”89
A federal court of appeals upheld the IRS's disallowance of a charitable deduction for tuition payments made to a religious school where the children of the payors were in attendance, rejecting the arguments that there was a gift or that enactment of the rules as to intangible religious benefits changed the law in this area.90 A set of parents claimed charitable contribution deductions for a portion of their tuition payments, with the “gift” element ostensibly being equal to the proportion of the school day allocated to religious education. The appellate court ruled that the additions to the tax law of charitable giving of the charitable gift substantiation requirements91 and the quid pro quo contribution rules92 did not change the substantive definition of a charitable contribution, but rather added “procedural provisions regarding the documentation of tax return information.” These rules include exceptions for contributions for which solely religious benefits are received.93
A comparable issue can arise with seminars for which there is no enrollment or entrance fee. At the conclusion of the seminar, the participants may be given the opportunity to make a contribution to the educational organization that conducted it. The organization may suggest, but not require, that participants contribute a specified amount to cover the costs incurred by the organization in providing the seminar. A “contribution” of this nature is not a gift and is not deductible as a charitable contribution.94
Likewise, a payment to a home for the elderly or similar institution or organization is generally not a gift when the payor has a dependent parent who is a resident of the home.95 However, an unrestricted contribution to a combined charity fund by a payor in this circumstance is deductible when the fund distributes the contributions to member organizations, which include the home, according to a formula.96
Still another example of payments that are for services rendered are those for adoption assistance. Thus, a court held that a husband and wife were not entitled to a charitable contribution deduction for payments made to a charitable organization that operated an adoption service for placement of a child in their home; the payment was deemed an adoption fee rather than a gift.97 There is (questionable) authority to the contrary, holding that even though a charitable organization provided adoption services to the “donor,” a payment by the donor to the organization following placement of a child was a deductible charitable contribution because the organization was not authorized by law to charge for its adoption services.98
Still another illustration of this point arose when the Chief Counsel's Office of the IRS ruled that a business corporation's contribution to a charitable organization, designated by an employee of the corporation, was not deductible as a charitable gift by the corporation because the contribution was made under a program to match the employee's contribution to the corporation's political action committee (PAC).99 The reason for the lack of deduction was that the corporation received a quid pro quo for the payment to the charity, in the form of a contribution to its political action committee. Typically, a “charity-PAC matching program” (recognized by the Federal Election Commission100) allows employees of a business to designate a charitable organization as the recipient of a contribution from the corporate employer. The contribution subsequently made by the corporation was an amount equal to the sum of the contributions that the employees made to the corporation's political action committee during the previous year.101
In a further illustration of this point, two courts denied contribution status to payments to the United States Olympic Team (a charitable organization) made by parents of a figure skater while accompanying her to various international competitions, because the payors were “motivated primarily by concern for their daughter rather than by an interest in the Olympic Team in general.”102 The appellate court said that “a contribution may not be deducted where the expectation of personal benefit is the primary motive.”103
Still other illustrations of these situations, where a charitable deduction may be available if the amount paid exceeds the value of the return benefits and there is donative intent, are payments made at a charity auction and dues paid by participants in a tax-exempt booster club.
Another illustration of this point is the matter of amounts paid to charitable organizations for chances to participate in raffles, lotteries, or similar drawings or to participate in puzzle or other contests for valuable prizes. These are not gifts; the general rule is that the purchase price of a raffle ticket and the like is equal to the value of the chance to win the prize. Therefore, there is no charitable contribution deduction for the payment. (In some instances, however, an amount paid to a charity in excess of a benefit received can be a charitable gift.104) Nonetheless, when an activity such as this is operated as a charitable fundraising effort such as a sweepstakes program, when a purchase by the participants is not involved, and when it is clearly stated in the promotional materials that a payment is not required to enter the promotion, the payments to