People attend benefit auctions for a variety of reasons — but one of those reasons is typically that their contribution is tax deductible. We wrote about the various tax issues at a benefit auction here: https://mikebrandlyauctioneer.wordpress.com/2016/09/05/tax-issues-at-a-benefit-auction/
Our analysis today involves when the auctioneer takes in the money [rather than the 501(c)(3)] and deposits that money in his/her trust/escrow account, paying the 501(c)(3) thereafter. First, it is important to know what an auctioneer trust/escrow account is — and it is an account that houses money belonging to others.
While not all auctioneers utilize trust accounts, they provide for the best way to manage an auction settlement and protect the client’s money. We wrote more about such accounts here: https://mikebrandlyauctioneer.wordpress.com/2012/06/23/auctioneer-trust-accounts/
So the question is: If the buyer at the benefit auction writes a check or otherwise pays the auctioneer for their purchases and those moneys are deposited in the auctioneer’s trust account, is that purchase price (to the extent it is at all) tax deductible? Does it matter that the money went to the auctioneer and then the 501(c)(3) rather than directly to the 501(c)(3)?
For auctioneers and those conducting benefit auctions, deposits to a trust/escrow account do not count as income for the auctioneer; this money is merely being held for the client and therefore it’s the client’s money/income. Essentially this would be no different than if a buyer gave $10,000 cash to his brother to pay his benefit auction invoice — his brother would be acting solely as the escrow agent …
For that matter, if you walk up to the checkout area and hand your payment to a cashier — you aren’t handing your money to the 501(c)(3) here either as the charity is the business entity and the cashier is the agent, or employee, and thus not the charity itself; only when the money is thereafter deposited in the 501(c)(3)’s account is the charity paid.
Further it would be prudent for the 501(c)(3) to provide a receipt to the buyer showing the contribution to the charity — and that is because the payment has been made to the 501(c)(3) through constructive possession: money possessed by the auctioneer belonging to and for the charity.
Likewise it would be equally significant that the auctioneer (or any other agent) not provide a receipt to the buyer indicating the payment was made to the auctioneer — because it wasn’t. Again, the payment is being made to the charity via an intermediary who is holding that charity’s money for them.
Escrowing money (or property) can be done with a person’s hand, a coat pocket, a cash box and/or a trust/escrow account as it’s simply putting this money in the “hands” of a third party for the benefit of the parties to the transaction — and in these circumstances those parties are the buyer (donor) and the charity (donee.)
Finally, there is no substitute for checking with your accountant ahd/or tax advisor in your market and seeking their advice and counsel.
Mike Brandly, Auctioneer, CAI, CAS, AARE has been an auctioneer and certified appraiser for over 30 years. His company’s auctions are located at: Mike Brandly, Auctioneer, RES Auction Services and Goodwill Columbus Car Auction. He serves as Distinguished Faculty at Hondros College of Business, Executive Director of The Ohio Auction School, an Instructor at the National Auctioneers Association’s Designation Academy and America’s Auction Academy. He is faculty at the Certified Auctioneers Institute held at Indiana University and is approved by the The Supreme Court of Ohio for attorney education.