There are five elements that need to be addressed for the gift and tax treatment of charity auctions. They are:

1. The tax treatment, with respect to the charitable organization, of the funds expended by the patrons at the auction
This issue relates to the application of unrelated business income tax (UBIT) to the net revenue realized from the event. Arch does not consider the net revenue taxable for UBIT purposes. TOP

2. The charitable contribution deductions available to those who contribute something to be auctioned
The usual rule is that the deduction is equal to the fair market value of the contributed property. There are exceptions, and donors should always consult their own professional advisors prior to making gifts. If the item donated has a value in excess of $5,000, the deduction is dependent on a bona fide appraisal. There is no charitable deduction for a gift of the right to use property, i.e., vacation homes, etc. There is no charitable deduction for a gift of services, i.e., a lawyer donating time to draft a contract, etc. TOP

3. The charitable contribution deduction may be available to those who acquire an item at a charity auction.
The persons who buy the auctioned items do not receive a charitable contribution deduction. The only exception to this could be for expensive items such as a car with an established value, and, at auction, a value much greater is received. This difference may be treated as a charitable deduction by the purchaser. The substantiation will fall on the purchaser. TOP

4. The state sales tax rules
The item sold at auction is essentially a purchase, and as such will trigger state sales tax. Per Georgia state law, the applicable sales tax for each item sold at auction would be charged back to the appropriate Arch fund. Please note that Arch funds cannot be used to purchase items for auction. TOP

5. The federal tax rules for reporting the event to the IRS
For any fund-raising event, net revenue received in excess of $25,000 must be reported to the IRS. TOP

  In addition to the above, Arch requires that, for any fund-raising event that is not on University property, an "Indemnification and Hold Harmless" (see Exhibit II.A) agreement be executed. TOP