SERVICE ANNOUNCES INFLATION-ADJUSTED VALUES OF LOW COST ARTICLES TAX-EXEMPTS MAY DISTRIBUTE IN FUNDRAISING.

Rev. Proc. 92-58

SECTION 1. PURPOSE

The purpose of this revenue procedure is to provide exempt organizations and their charitable contributors with the inflation adjusted amounts for tax years beginning in 1991 and 1992 for: (1) a "low cost article" under section 513(h)(2) of the Internal Revenue Code of 1986; and (2) the "$25 payment" amount set forth in Section 3.01, paragraph 2(b) of Rev. Proc. 90-12.

SEC. 2. BACKGROUND

01 Section 513(h) of the Code provides that the term "unrelated trade or business" does not include activities related to the distribution of low cost articles if the distribution is incidental to the solicitation of charitable contributions. Section 513(h)(2)(A) defines the term "low cost article" to mean any article whose cost is not in excess of $5 to the organization which distributes such item (or on whose behalf such item is distributed). Section 513(h)(2)(C) requires the indexation of the $5 amount beginning in calendar years after 1987.

02 Rev. Proc. 90-12, 1990-1 C.B. 471, in section 3, sets forth guidelines for charities to determine when the benefits received in exchange for a payment to the charity are considered to have an insubstantial fair market value. Under the guidelines, the benefit is considered insubstantial if the payment occurs in the context of a fund-raising campaign in which the charity informs patrons how much of their payment is a deductible contribution, and (a) the fair market value of the benefits received is less than 2-percent, or $50 whichever is less, or, (b) the payment is $25 (adjusted for inflation) or more and the benefits received in return are token items having a value in the aggregate of less than the limit established for a "low cost article" under section 513(h)(2). Rev. Proc. 90-12, section 3.06, refers to Rev. Proc. 90-7, 1990-1 C.B. 432, in determining the inflation adjustment for 1990. Rev. Proc. 90- 7, 1990-1 C.B. 432, sets forth the inflation factor used in computing the "low cost article" and "$25 payment" amount as 1.0907873195. Thus the "low cost article" and "$25 payment" amounts for the year 1990 were $5.45, and $27.26, respectively. ( Rev. Proc. 90-12, section 3.06, supra.)

SEC. 3. INFLATION ADJUSTMENTS FOR 1991 AND 1992

01 The inflation factors for 1991 and 1992 are 1.1435481470 and 1.2038993898, respectively. These factors have previously been published by the Service in Rev. Proc. 90-64, 1990-2 C.B. 674, section 9.02, for 1991, and Rev. Proc. 91-65, 1991-2 C.B. 867, section 10.02, for 1992. These factors are applied to the $5.00 "low cost article" amount, specified in section 513(h)(2) of the Code, and the "$25.00 payment" amount specified in section 3.01, paragraph 2(b) of Rev. Proc. 90-12, rounded down to the nearest $0.01.

02 Accordingly, as indicated above, for years beginning in 1991, the cost of a "low cost article" may not exceed $5.71. For years beginning in 1992, the cost of a "low cost article" may not exceed $6.01. Similarly, for years beginning in 1991, the "$25 payment" amount of section 3.01, paragraph 2(b) of Rev. Proc. 90-12, must be $28.58, and for years beginning in 1992, the "$25 payment" amount must be $30.09.

SEC. 4. EFFECT ON OTHER DOCUMENTS

Rev. Proc. 90-12, 1990-1 C.B. 471, section 3.06, is supplemented for tax years beginning in 1991 and 1992.

DRAFTING INFORMATION

The principal author of this notice is Robert C. Harper, Jr., of the Exempt Organizations Technical Division. For further information regarding this notice contact Mr. Harper at (202) 622-7758 (not a toll-free number).