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Rebekah Wolkenhauer, Author at Ketel Thorstenson, LLP


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June 8, 20140

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.


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December 15, 20130

Rebekah-Wolkenhauer-headshotIndividuals typically provide donations in the form of monetary or donated property.  These contributions benefit the charitable organization and also provide a tax deduction to the donor.  In order for this tax deduction to be allowed, the IRS has specific requirements for the charitable organization to follow.  Do you know what all of the requirements are?  Acknowledging donations is not only required by the IRS, but also provides a means for an organization to say ‘thank you’.

There are many ways in which an individual can donate to a charitable organization.  We will focus our discussion on two main ways: monetary and property.

Monetary
The IRS requires a donor to maintain a record of their contribution or a written communication from the charity in order for the amount to be deducted on their individual tax return.  A record of their contribution could be in the form of cancelled check or, for payroll deductions, a pay stub or other employer-furnished document showing the amount withheld.  If a donor makes a single contribution greater than $250, written communication from the charity is required.

Donated Property
Individuals who donate property are allowed to deduct the fair market value of such property as of the date of the donation. Donated property can range from clothing and toys to vehicles, artwork or land.  The value of the property is
the responsibility of the donor for purposes of determining the amount of the deduction.  The charitable organization
should always provide acknowledgements; however, the acknowledgement should never include an estimated fair market value. See next quarter’s article regarding Considerations When Receiving Donated Vehicle for more details.

Requirements
The following items are required to be included in the written communication from
the charity:

1. Name of the organization, including a statement that the organization is a charity recognized as tax-exempt by the
IRS under Section 501(c)(3).

2. Date of the donation.

3. Acknowledge the amount.
a. If cash, include the amount received.
b. If donated property, include a description (but not the value) of the non-cash contribution.  The value of the
non-cash contribution is the donor’s responsibility.  For example:

Thank you for the 200 shares of IBM stock donated on December 31, 2013.

4. Statement that no goods or services were provided by the organization in return for the contribution, if that was the
case.
a. If any goods or services were provided (referred to as a quid pro quo contribution), include a description and
good faith estimate of the value of the goods or services.  For example, an individual paid $100 to attend an
annual gala event to include dinner.  (See exceptions to this rule outlined below.)  The acknowledgement could
state,

For federal income tax purposes, you can deduct as a charitable contribution the price of this ticket less its fair
           market value. We estimate the fair market value of this ticket to be $40, so your charitable contribution is $60.

A penalty is imposed on a charity that does not make the required disclosure in connection with a quid pro quo
contribution of more than $75. The penalty is $10 per contribution, not to exceed $5,000 per fund-raising event
or mailing.

Other Comments
Thefollowing summarizes some of the other nuances of these requirements:

  • Acknowledgement is required for each donation greater than $250.  In lieu of this, the charity can provide an annual statement of all giving.
  • Acknowledgements are typically sent to donors no later than January 31st of the year following the donation.  A donor must receive acknowledgement by the earlier of: the date the donor files his/her tax return or the due date of the extended tax return in order for the individual to deduct the contribution.
  • Although no financial penalty to the charitable organization exists for not providing the written acknowledgement, there could be a financial or public relations impact if the donor was unable to deduct the donation on their tax return and then, consequently, decides not to donate again.
  • Acknowledgements can be provided in written format, such as letters, postcards or computer-generated forms, or they can be provided electronically.
  • What are the requirements if a donor requests not to be reimbursed for an expense?  Is that considered a charitable
  • contribution?  Yes.  The rules are the same as above.  For example, a committee member elects to pay his/her own way to a conference for the benefit of the charitable organization.  The donor should receive a written acknowledgement of this donation. As it was a noncash donation, only a description would be provided in the acknowledgement.
  • There are a few exceptions to providing the fair value of goods or services received.  See those exceptions outlined below:
    a. Token Exception – Insubstantial goods or services provided by a charitable organization in exchange for
    contributions do not need to be reported. The amount considered insubstantial is adjusted for inflation
    each year.  According to the IRS’s 2014 inflation adjustments regarding quid pro quo contributions, to
    qualify as token goods or services, they must cost the organization no more than $10.40, and the
    contribution received must have been at least $52.

    For example, if a charitable organization gives a water bottle with its logo and that cost is less than
    $10.40, the organization does not need to provide a statement with the fair value of the goods or
    services received for donors who contributed more than $52.  The individual would receive the full $52
    deduction on their tax return.

    b. Membership Benefits Exception – An annual membership benefit is also considered insubstantial when
    provided in exchange for an annual payment of $75 or less and consisting of annual rights and privileges,
    such as allowing free admission to workshops.

If your organization has any specific questions regarding acknowledgements to donors, please feel free to contact any one of our non-profit specialists.


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