Q. I’m confused about membership dues deductions when the organization is a 501(c)3. I believe that even with a (c)3 organization, membership dues are still deductible as a business expense. Does that option mean that dues can never be deducted as a tax-deductible charitable donation when the membership organization is a 501 (c)3? Depending on their tax situations, some members might prefer to have their dues be a charitable donation rather than a business expense.

A. The essential principle here is that a taxpayer can receive charitable deductibility status when making an expenditure to a charity only to the extent that the taxpayer does not receive value in return. That is usually not something that the taxpayer has the option of deciding on their own. There either is value in return or there is not, and to the extent there is value, there is no tax deductibility for the donor (such as when one makes a $500 “donation” for a charity dinner; the dinner is worth $100; so the donor is only making a $400 charitable contribution). Dues are tricky because it’s often hard to determine the value a member gets in return. Some large charities such as the American Diabetes Association calls donors “members” and they all get some benefits such as a newsletter, etc. In short, charitable deductibility is something that needs to be clearly established; and it depends completely on whether:

(1) the recipient is a public charity; and

(2) the donor gets nothing of value in return for the charitable contribution (or gets lower charitable contribution deductibility to the extent there is anything of value in return).

There’s a possibility that a corporate donor’s payment to a charity would qualify for charitable deductibility under IRC Sec. 170 because the donor gets nothing in return, but that corporate donor can also justify deductibility as an ordinary and necessary business expense under IRC Sec. 162 (for example, because the payment is well-publicized and the corporate donor is comfortable that it receives promotional value from making it). Confusing? Yes, very. That is why we advise members to check with their tax advisors.

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