Not-for-profit organizations and noncash gifts

Many tax-exempt organizations are dependent on contributions and are reluctant to refuse any donor who may be inclined to share their wealth. Noncash gifts, however, may come with risk to the tax-exempt organization. Read accounting for noncash and hard-to-value gifts article.

Oftentimes, these noncash gifts require additional reporting by the recipient organization to both the donor and the Internal Revenue Service (“IRS”).

There are some general guidelines that organizations should consider when accepting noncash gifts. Some questions for the recipient to consider are:

• Can the recipient use the gift, such as clothing, furniture or household goods?
• How does the liquidity of the donation affect its desirability?

Not all organizations are as well-equipped as others to accept noncash or hard-to-value gifts, such as musical instruments, cars or intangible assets.

Rules and considerations for recipient organizations of noncash contributions are as follows:

• It is the responsibility of the donor to have the noncash contribution appraised. The donor may present a recipient organization with page 2 of Form 8283, which is used to report noncash contributions valued at more than $5,000. By signing the form (after a qualified appraiser has signed), the organization is acknowledging receipt of the donation and that the donation is as described. The organization is not agreeing to the stated fair market value. The recipient organization should not indicate this value to the donor on a gift tax acknowledgment letter. The organization may want to have an appraisal performed for its own reporting purposes but should not share that appraisal with the donor. The exception is the receipt of securities that can easily be quantified on a stock exchange or other public trading platform.
• The recipient organization should consider whether the noncash contribution is to be maintained at the organization and if so, should consider the costs of maintenance, insurance, etc. Gifts of property may require the payment of real estate tax if the recipient organization is not eligible for a property tax exemption.
• If the organization intends to sell the item, it needs to recognize that the IRS requires additional reporting if the item is to be sold within three years of receipt. The organization will be required to file either Form 8282, donee information return, or Form 1098-C, contributions of motor vehicles, boats and airplanes, to inform both the IRS and the donor of the sale amount. The donor will then be required to amend their Form 1040 for the year in which the contribution was reported so that the amount of the contribution reflects the sale price.
• Donations of cryptocurrency, while new and not yet widespread, need to be treated as noncash, which means the same rules would apply. The cryptocurrency would need to be appraised by a qualified appraiser (by the donor) and the recipient organization should have an acceptance policy in place that is clear about the process by which the organization will accept cryptocurrency.
• Note that not all noncash donations are reportable. Donated services and contributions of facility rentals are not reported on Form 990. Instead, they are treated as an adjustment to net assets. Similarly, contributions of broadcast time or advertising are also considered to be donation of services and not reportable.
• Membership dues revenue may also be considered contributions, either in whole or in part, based upon the value of goods and/or services received. If a member receives anything of value, the contribution would be the amount in excess of the value of the goods and/or services received.
• Recipient organizations should also be aware that buyers at auction events may also make contributions if they purchase an auction item at a price in excess of the item’s market value. In these instances, the organization must determine the fair market value of auction items and report to the donor the portion of the purchase price that can be considered a contribution.

The information described above is not comprehensive but is meant to be illustrative of considerations of which tax-exempt organizations should be aware when working with noncash contributions. It is highly recommended that all tax-exempt organizations have a gift acceptance policy, particularly with regards to unusual or large gifts. Whenever encountering a new and/or unique contribution, organizations should reach out to a not-for-profit tax professional to clarify its reporting obligations. Baker Tilly can assist with both the creation of a thorough gift tax policy and ensuring that the acceptance of any gift meets all requirements for reporting.