As we near year-end, not-for-profit organizations may see a rise in non-cash stock gifts as donors plan their holiday giving and/or meet with their tax advisors to maximize tax saving strategies for the current year.
Unlike cash gifts, non-cash gifts such as stock often cause concern and pose questions for nonprofits. For example:
- How is the gift valued?
- Should the gift be sold immediately or held?
- What should be included in the tax acknowledgment letter?
Gift Valuation and Sale
In accordance with generally accepted accounting principles (GAAP), a contribution should be recorded at the fair value of the stock on the date received.
Publicly traded stock should be valued at the average of the high and low price as of the day the stock was received. For stock that is not publicly traded, the fair value can be determined by considering the following factors (per the IRS – publication 561):
- For bonds, the soundness of the security, the interest yield, the date of maturity, and other relevant factors
- For shares of stock, the company’s net worth, prospective earning power, dividend-paying capacity, and other relevant factors
If estimated to be greater than $10,000, the Internal Revenue Service requires that the donor obtain a value from a qualified independent appraiser.
Many not-for-profit organizations have a gift acceptance policy which addresses stock gifts; however, if this type of gift is not included, it is highly recommended that the organization liquidate the stock gift immediately to minimize the risk associated with the stock market.
Once sold, any difference between the fair value and the amount received is recorded as a realized gain or loss. If the organization incurs brokerage fees in relation to the sale, these should be recorded as an investment fee expense.
Acknowledging the Stock Gift
When a donation of stock is received, an acknowledgment letter should be sent to the donor.
This letter should acknowledge the gift of the stock, including the ticker symbol, the number of shares received and the date the stock was received in the organization’s brokerage account. The acknowledgment letter should not list the value of the stock.
Benefits to Donors
By donating the shares of stock rather than selling the stock then contributing the proceeds, the donor is not liable for capital gains taxes and is still eligible to deduct the full fair value of the asset donated, up to the overall amount allowed by the IRS.
If you have any questions regarding stock gifts, or any other issue affecting your not-for-profit organization, please contact your local Blue & Co. advisor.