Originally Posted by jason_kraft
This would be the way to do it. From the perspective of anyone not involved, the baker is giving someone a cake for free, and the recipient of the cake is donating directly to a charity in a separate, unrelated transaction.
To be clear I have been one to argue that baking for family and friends is not a business transaction and I have spoken against those that are concerned with policing legality. My issue is with those that will argue that any attempt to circumvent legal requirements through the act of donating between baker and "customer" is somehow distinct when the money goes to a third party justifying it as unrelated transactions. This is clearly a self-serving rationalization that masks the real nature of the relationship.
In fact, the perspective of anyone not involved is irrelevant (the whole point is to keep the outsider unaware of the exact relationship). This is nothing more than a bartering based exchange. Here is why.
The IRS characterizes charitable donations as a gift or donation that is "voluntary and is made without getting, or expecting to get, anything of equal value " (link)
. The IRS does not stipulate that the charitable organization has to be the one who provides anything in return. Indeed multi-party bartering is a common practice. In this case there is no doubt that the "donation" made by the customer is not voluntary as there is most certainly an expectation of getting something in return. This is clearly an exchange based relationship wherein the customer provides a service to the baker in exchange for a cake.
Now the objection will be nothing is being bartered because a monetary donation is not a service. In this situation this is most certainly not the case. Although the definition of service is contested it is common to describe it as a task performed by individuals. While certainly in most cases few would consider a donation a service, this is due to the fact the money is donated freely to a charity. That changes when it is required by a third party in exchange for something of equal value.
In this situation the individual is tasked by the baker with giving money to an organization. The donating agent therefore provides a service to the baker, even if the donation goes to a charity. That service is that the baker does not have to donate this/her money to the charity. The customer enables the baker to not have to donate the money they would have given if they did not have to make the cake.
If the baker would not have donated, the exchange based relationship is even more transparent. The baker can work on improving skills, doing what they want to do, making cakes. They do not have to sacrifice their own funds to the charity which would prevent him/her from continuing to bake and decorate. In either case the service is the enabling the baker to not have to donate thereby enabling them to do something else. The baker is clearly bartering his/her goods (a cake) for a distinct service (not having to donate to his/her favorite charity).
Claiming that the acts are unrelated is simply false and an outright misrepresentation of facts. Anyone could engage in the same characterization without including a charity. Here is how. I give monetary gifts to my friends, family, and strangers (panhandlers for example) fairly regularly. I can easily come up with a celebratory reason to give people money. So X person gives me a $100 gift on Monday, who knows why, maybe they just like giving me gifts on Monday (but we all really know why). On Friday I "give" them a cake well because I know they like my cakes and I like them to tell me how good they (but we all really know why). How is any outside person going to know it was "paid" for? They are totally unrelated right? But we know they are not, just as they are not in this case.
Frankly I don't care if a person wants to engage in this relationship (no more than I care if someone wants to "donate" cash). Put another way, I am not here to police your legality or illegality. Just be honest about the nature of the transactions instead of acting as if it is somehow not a relation of exchange.