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Considerations When Receiving Donated Property

Rebekah-Wolkenhauer-headshotIn the December issue of the KT Non-Profit e-newsletter, we discussed the requirements of acknowledging a donor for a charitable contribution (Click to read previous article).  The article discussed the requirements for cash donations, but what are the requirements for the receipt of donated property?  Donated property can range from clothing and toys to vehicles, artwork or land.

Non-profits can benefit from the receipt and subsequent sale of property received in order to raise program funds.  Did you know this donation has a potential impact to an organization’s tax exempt status?  Are you aware of the requirements to acknowledge the receipt of such items?

Donated Property

Non-profit organizations should consider establishing a gift acceptance policy.  The primary benefit of gift acceptance policies is to maintain discipline in gift acceptance and administration.  Discipline prevents the acceptance of gifts that will cost the nonprofit organization time, money, and possibly its reputation, by reminding the organization when to say, No.  The policy should outline steps taken to refuse a potentially controversial gift and steps to avoid environmental liabilities.  The policy should consider unusual gifts that would be difficult to value and/or convert to cash.  Other items to consider would include insurance, transport, storage, maintenance and expenses related to the sale of donated property.

One of the most common and popular donations to a non-profit is the contribution of a vehicle.  In addition to a gift acceptance policy, non-profits should consider establishing a car donation program to ensure the tax-exempt status of the organization is maintained. This program should include policies which ensure adherence to the IRS regulations and requirements as outlined below.

Requirements

A non-profit organization should understand the IRS regulations regarding donated property.

  • The individuals providing the contributed property are allowed an itemized deduction on their income tax return for the fair value of the property.  It’s the donor’s responsibility to determine the value of the property for deduction purposes.
  • The individual is not allowed to deduct this amount unless it obtains a written acknowledgement from the organization.  All gift acknowledgments should contain:
    o    A statement that the nonprofit is a charity recognized as tax-exempt by the IRS under Section 501(c)(3);
    o    Description of the donated property (the nonprofit should not attempt to assign the fair market value of the
    property in the letter – that is the donor’s responsibility);
    o    The date the donation was received;
    o    Either: (a) statement whether the organization provided any goods or services in return for the donation,
    such as, “No goods or services were received in return for this gift”; or (b) if the gift was $75 or more and
    the non-profit did provide something of more than insubstantial benefit in return for the gift, (such as tickets
    to a special event or a dinner), then the charity must include a good faith estimate of the value of the
    goods/services provided (such as the market value of tickets to the event or the actual cost of the dinner –
    even if it was donated to the charity).
    o    See more at:
    http://www.councilofnonprofits.org/resources/resources-topic/fundraising/acknowledging-gifts-and-contributions

Other items to consider:

If an individual donates property with a value greater than $5,000, the individual is required to obtain an appraisal.  Form 8283 must be completed by the individual with portions completed and signed by both the appraiser and an authorized official of the non-profit organization.

For any donated property sold by the non-profit organization within two years of its receipt, Form 8282, Donee Information Return, must be completed by the donor within 125 days of the sale.  This form includes information regarding the identity of the donor, the charitable organization and the amount received from the sale/disposition of the property. The organization must provide a copy of Form 8282 to the donor as well.

Although the receipt of donated property has many benefits to a non-profit organization, it must also exercise caution that it does not appear to benefit certain private individuals or parties.  For example, if the organization only receives donated property from one individual who also is a board member, this could be construed as benefiting only certain private individuals.  The consequence of this matter is the loss of the organization’s tax exempt status.

Non-profit organizations want to encourage continuous giving from donors, but they should also ensure they can maintain their tax exempt status by understanding the rules and regulations surrounding the receipt of such gifts.  This will also ensure the tax deductibility for the individual.  For further information, refer to IRS Publication 4302 or call one of our non-profit professionals at 605-342-5630.

Rebekah Wolkenhauer

Rebekah Wolkenhauer

Rebekah, a Harry Potter fanatic, joined the KTLLP team when McGladrey Pullen joined Ketel Thorstenson, LLP in 2005. Although it's nothing like casting spells and wizardry, her areas of expertise include audits of manufacturing, retail, non-profit organizations, and employee benefit plans.
Rebekah Wolkenhauer

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