This is the second article in a two-part series on gifts in kind. Click here to read Part 1 where we discuss types of in-kind gifts and how they should be reported. In this article, we discuss the documentation best practices and the impact in-kind gifts have on tax reporting.
What are best practices for documentation of in-kind gifts?
Best practices and strong internal controls require a not-for-profit (NFP) to have documentation to support any contribution. To ensure all in-kind gifts are captured, documentation should be maintained to determine not only proper recognition (whether required criteria met) but also valuation of the gift. Documentation should include the date, donor name, any restrictions and type of asset to be received.
NFPs often adopt a gift acceptance policy to manage the expectation of donors. This can be especially useful in dealing with non-standard contributions such as in-kind gifts. When in-kind gifts are offered to a NFP, a gift acceptance policy guides the organization in determining whether the gift should be accepted by asking the questions:
• Can the gift be used to support our mission?
• Does the nature of the gift go against the NFP’s culture?
• How difficult would it be to use the gift or sell it?
• Are there additional costs associated with this gift?
Having a policy in place prior to being faced with such questions can help expedite the process of either accepting or denying the gift in a consistent manner, and it can alleviate any difficulty in explaining to a donor why a gift cannot be accepted or is not in the best interest of the NFP.
Impact of Gifts In Kind on Tax Reporting
Gifts of in-kind services are not reported on the Federal Form 990 Return of Organization Exempt Form Income Tax (Form 990). While they are included in reconciling items on Schedule D of Form 990, they are not reported as income or expense on Form 990. This means these donations are not included on the public support test on Schedule A of Form 990 unless the services are furnished by a governmental unit. An example of services provided by a governmental entity would be office space or parking space provided by a state government to the NFP. These donations, while not recorded in revenue on Form 990, have a separate line item on Schedule A to be included on the public support test.
Donations of goods or assets are recorded as revenue on Form 990 if the total of all non-cash donations exceeds $25,000 for the year. The detail of the donations will be reported on Schedule M of Form 990 and includes the type of property, number of items contributed, amounts as reported on Form 990, and method of determining contribution amount. Additionally, donations in excess of $5,000, in total, by a donor are generally reported on Schedule B of Form 990, Schedule of Contributors, listing a description of the item given, the donor, date received, and amount. Schedule B names and addresses are not made available to the public.
If a donor gifts property valued in excess of $5,000, other than publically traded stock, the NFP may also be asked by a donor to sign a Federal Form 8283 Noncash Charitable Contributions form. The NFP is required to complete a donee acknowledgment portion of the form. The individual acknowledging the gift must be an official authorized to sign the tax returns of the organization or an individual specifically designated to sign Form 8283. The NFP is acknowledging the name of the donor and a description of the property, including a physical description. Additionally, should the NFP sell the property within three years, the NFP may be required to file a Federal Form 8282, Donee Information Return.
NFPs are also required to file a separate Form 1098-C Contributions of Motor Vehicles, Boats, and Airplanes with the IRS for each contribution of a qualified vehicle that has a claimed value of more than $500. A qualified vehicle is one that is manufactured primarily for use on public streets, a boat or an airplane. Information in this form includes the NFP’s name (donee), date of contribution, vehicles information, and various information about the use or subsequent sale of the vehicle.
If you have any questions about recognition, documentation or tax reporting of in-kind gifts for your organization, feel free to contact Chris Mickelson (firstname.lastname@example.org) or talk to your local Blue & Co. advisor.