Gives New Meaning To Charitable Donation
Definately proves charitible deductions must be documented and comply with detailed rules!
June 15, 2012, 5:29 p.m. ET
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Lunch With Warren Buffett: One Giant Tax Deduction .
By LAURA SAUNDERS
An anonymous donor on June 8 paid $3.46 million to Glide, an antipoverty group in San Francisco, for the privilege of having lunch with Warren Buffett.
Berkshire Hathaway CEO Warren Buffett
Is the donation tax-deductible? Experts say most of it probably is, meaning taxpayers in effect will pick up about $1.2 million of the tab.
"Celebrities of all sorts use their fame to support charities, both big and small, and the same rules apply," says David Lifson, a partner at Crowe Horwath, an accounting firm in New York.
The lunch is Glide's 13th annual auction of a meal with Mr. Buffett. This year's winning bid was almost $850,000 more than last year's; the lunches have raised nearly $15 million for the group, which was a favorite of Mr. Buffett's deceased first wife, Susan.
Like any other charity, Glide will have to send the donor a letter saying how much of the gift is tax-deductible, and the assessment must be able to withstand a challenge by the Internal Revenue Service. Last month, the U.S. Tax Court, in a case known as Mohamed v. Commissioner, denied an $18.5 million charitable deduction by a California couple who didn't have correct paperwork before they filed their return.
Experts expect Glide's letter to exclude the fair-market value of the lunch from the donation total. The law mandates a disallowance for any goods or services received in connection with the donation, such as the lunch, which includes Mr. Buffett, the donor and up to six invited guests. The fair-market value is the cost of the prepared food to regular diners, not the purchase price of the groceries at a market.
What is Mr. Buffett's company and conversation worth? Nothing, under an IRS rule in effect since the mid-1990s. It deems "celebrity presence"—as when a famous artist gives a museum tour to a donor who has won it in a charity auction—to have no value in and of itself. Mr. Buffett has specified that talk of investments is off limits, so he isn't providing a service.
A spokesman for Glide said details of this year's auction—such as who will pay for the lunch—aren't yet clear, but added that the charity does "employ the celebrity-presence rule" in its donor letter.
As a result, tax specialists expect most of the donation to be deductible in 2012, provided it isn't subject to other tax-code limits. For example, taxpayers can't deduct cash donations greater than 50% of their adjusted gross income to a charity like Glide; the excess carries forward for up to five years.
Mr. Buffett himself gets no deduction for gracing the table. The site of this year's meal hasn't yet been chosen, according to Glide's spokesman. In 2010 and 2011 the meal was held at Piccolo Pete's in Omaha, Neb., a favorite of Mr. Buffett.
In both 2010 and 2011, the winning bidder of the Glide lunch was Ted Wechsler, whom Mr. Buffett later hired to help manage Berkshire Hathaway's BRKB +1.04% portfolio. Crowe's Mr. Lifson says Mr. Wechsler was probably better off taking a charitable deduction than trying to write off the cost of the lunch as a job-search expense, which might not be deductible at all because of several different limitations.
As in years past, Mr. Buffett "will not talk about specific stocks or give stock recommendations," according to an email from his assistant. She adds that he and his charity-meal companions usually talk about "family, philanthropy, economics, the world, etc."
Write to Laura Saunders at
laura.saunders@wsj.com
A version of this article appeared June 16, 2012, on page B9 in the U.S. edition of The Wall Street Journal, with the headline: Lunch With Warren Buffett: One Giant Tax Deduction.
