If only good intentions always were in sync with the law.

But it turns out, based on my reporting on the disturbing way the state taxes nonprofit fundraisers, it’s not always true.

In some cases, where individuals receive benefits or services from a nonprofit, I discovered that charities can subsidize the price of events to make the tax deduction more attractive. This means that they may be rewarding donors with tax deductions that are bigger than the law allows.

Here’s how the law says it should work. When someone buys a $10 ticket for a fundraising lunch, and the lunch cost $7, the donor can claim a $3 tax deduction. When someone pays $100 for a $25 blender at a charity auction, the donor can claim $75 as a tax deduction.

Yet in my reporting on the General Excise Tax and nonprofits, I learned that some charities absorb part of the cost of fundraising events to give their donors a bigger tax write-off.

That might be a generous sentiment. But it also doesn’t follow the law.

The Federal tax law, which regulates deductions for charities, says that the tax deduction must be based on the value of the good – the dinner, the blender, the chili – not on who pays for it.

“The law is pretty clear,” said Ron Heller, an attorney with Torkildson Katz in Honolulu who specializes in tax policy. “The total amount that the donor gives has to be split up in terms of the true value of what they’re getting back.”

What is tricky for nonprofits, however, is how to determine the value of the goods or services they provide donors.

“Where you get into interpretation is how you put a value on something that’s given back,” says Heller, “particularly if it’s not something that’s bought, but a service that the charity provides. Putting a number on the value can get more complicated.”

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