On the Record: No Substantiation Without Representation
Typically, the charity receives a monetary benefit every time the donor uses his credit card. In Private Letter Ruling 9623035, the IRS addressed a variation of this plan where a company proposed to sponsor credit cards and debit cards issued through banks.
When a cardholder used the card, the retailer transferred a portion of the purchase price back to the company. The amount received from the retailer was held in a separate account, maintained on behalf of the cardholder and periodically transferred to either the cardholder or to an organization selected by the cardholder.
The IRS ruled that the substantiation rules applied to each transfer of $250 or more by the company to a charity on behalf of the cardholder. The same rules would apply to transfers of $250 or more to a charitable organization by a credit card company on behalf of an affiliated credit cardholder.
The key distinction here is not what is set aside for charity each time the affiliated credit card is used, but the payment amount that actually is made to the organization on behalf of the donor cardholder.
Thank your donors
Finally, if a taxpayer gives money to a charity in exchange for some consideration, a charitable deduction is allowable only if the donation exceeds the value of the consideration. For example, if a donor purchases a ticket to a fundraising event for $300, and the ticket entitles her to a dinner at fair-market value ($25), the value of her contribution is $275 ($300-$25), and substantiation rules will apply.
If, however, the ticket entitles the donor to dinner and dancing with a value of $75, for purposes of the substantiation rules she will not have made a contribution of $250 or more and is not required to obtain a contemporaneous written acknowledgment.
