Not all donations come in the form of cash. Donors may want to contribute financial assets, real estate, clothing and artwork to help your not-for-profit organization further its mission. If your organization accepts these in-kind donations, it should have clear policies and reporting measures in place.
Compliance issues have made noncash charitable contributions a target for regulators. A review conducted by the Treasury Inspector General for Tax Administration (TIGTA) of the 2010 tax year uncovered $3.8 billion in potentially erroneous noncash charitable contributions, which reduced donors’ tax liabilities by nearly $1.1 billion. TIGTA concluded that IRS controls are not sufficient to ensure taxpayers are complying with these in-kind charitable contribution reporting requirements.
In light of the results, the IRS will likely scrutinize high value in-kind charitable contributions on tax returns. Not-for-profit organizations that accept in-kind donations should be cognizant of the increased regulatory pressure and ensure the processes they have in place make it as easy as possible for donors to receive their full tax benefits for their donations.
The following frequently asked questions about in-kind donations may help your organization develop an appropriate gift acceptance policy.
Q: What information should be included on a donation receipt?
A: The IRS has not created a standard format for donation receipts, but the following must be included:
- Name of the charitable organization;
- Date and location of contribution; and
- Detailed description (but not the value) of the contribution.
Your organizations should also note whether the donation was part of a quid pro quo arrangement and whether goods or services were provided in exchange for the donation. When an organization provides a service or favor in exchange for the donation, it will reduce the amount the donor can take for his or her charitable contribution deduction. The not-for-profit organization should value the goods or services provided to the donor.
Q: What if a donor wants their donation back?
A: If your organization still has possession of the item, in most cases it is up to the organization whether it returns, or alternatively, sells it back to the donor. One of the conditions of the donor making a charitable contribution is that the donation is irrevocable, so you are not obligated to return the donated item after the contribution has been made. Another qualifier of a donation is that a donor is competent to make the gift. Under certain circumstances, an organization may be required to return the gift.
Q: What if materials are received in poor condition?
A: Your gift acceptance policy will serve as your guide about what items your organization can and cannot accept. A good test of whether your organization wishes to accept items in poor condition is whether it would write a donation receipt for those items. Keep in mind that even if an item is in bad condition, if you accept a donation valued at more than $5,000, you must sign the Form 8283, which helps the donor substantiate the charitable contribution deduction for his or her income tax return. If your organization does not want to spend the time fulfilling reporting requirements for items in poor shape, it should not accept them and include details about the condition of donations in its gift policy.
Q: Who is responsible for filing forms for donated items?
A: It is ultimately up to the donor to substantiate his or her donation. However, not-for-profit organizations will have reporting requirements, too, if the item is of a high value. Noncash contributions exceeding $5,000 generally must be analyzed by a qualified appraiser. Not-for-profit organizations should not pay for the appraisal because it may bring up private benefit issues. Additionally, it is not the organization’s responsibility to value the object; the donor is responsible for determining the value of in-kind donations in all cases.
Once an asset has been appraised, the donor submits a copy of Section B, Part IV of the Form 8283 to the not-for-profit organization, and an official authorized to sign the organization’s tax returns completes it and returns it to the donor. If an organization disposes of the donation, the organization may be subject to other filing requirements.
How Do I Know My Policy Covers All Its Bases?
A tax professional experienced with the filing requirements for donors and the recipient organizations can review your gift policy and ensure the processes in place are in compliance. For more information, please contact us.
Scott Goldberg is the Not-for-Profit Practice Leader for the New York office of CBIZ & MHM. He can be reached at 212.790.5713 or SGoldberg@cbiz.com.