4-H Livestock sales and the IRS

Funds paid and income received at 4-H livestock auctions are subject to federal tax laws.

The 4-H animal auction is a traditional event at many county fairs. Members raising 4-H project animals have the opportunity and potential to recover much of their financial investment. Therefore, Michigan State University Extension reminds all 4-H members and animal purchasers the importance of understanding that the funds paid and the income received at these events are subject to federal tax laws and Internal Revenue Service (IRS) regulations.

Two documents provide guidance on how members and contributors should handle these transactions.

A National 4-H Headquarters Fact Sheet explains the groundwork that is required. 4-H staff are responsible for ensuring that any sale or auction event that uses the 4-H name and emblem is properly authorized and chartered and therefore will be recognized by the IRS as a tax exempt 4-H organization. According to the fact sheet, “This insures that contributors and donors involved in the livestock sales, auctions, etc. can have their contributions verified by the IRS as a charitable contribution if it is given to a 4-H identified group.”

However, it is critically important to note that in situations where the proceeds from the sales pass through the 4-H organization and go directly to the 4-H member, the 4-H organization is only a conduit for the sale of the animal. In this case, the 4-H organization should clarify for purchasers that they have not made a charitable contribution to the 4-H organization, but rather have purchased the animal through the organization for the direct benefit of the 4-H member. Even in the instance where the sale price exceeds the current market value, the amount of money above the current market value is not tax deductible because an individual (the 4-H member) receives the proceeds.

In some instances, the 4-H organization withholds a small flat fee or a percentage of the proceeds to provide the necessary funds for the organization to operate; the remainder of the proceeds is paid directly to the 4-H member. In this case, a duly authorized 4-H organization has retained a portion of the proceeds and only the amount of that flat fee or percentage can be recorded by the purchaser as a charitable contribution.

According to the document Livestock Sales and Prize Winnings Frequently Asked Questions, income from a 4-H auction “is clearly taxable to the 4-H member. In most situations, the member would file a Schedule F to report the income.” It further notes that “there is no basis for a position that only income in excess of $600 is taxable. This seems to be a misunderstanding of the filing threshold for Forms 1099.” It is important that 4-H members and their families are aware of this tax filing obligation noting that Schedule F allows tax filers to deduct expenses against income. 

Due to the complexity and varied applicability of IRS regulations, 4-H members, organizations and contributors involved in these events are encouraged to seek the professional guidance of a tax advisor.

For more information about Michigan 4-H and the 4-H animal science program, contact your local MSU Extension office.

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