ALI-ABA Course of Study Legal Issues in Museum Administration

Transcription

1 433 ALI-ABA Course of Study Legal Issues in Museum Administration Cosponsored by The Smithsonian Institution with the cooperation of the American Association of Museums April 2-4, 2008 Scottsdale, Arizona In-Kind Gifts and Development Issues By Sara Geelan The Solomon R. Guggenheim Foundation New York, New York Julian F. Saenz National Gallery of Art Landover, Maryland Marsha S. Shaines The Smithsonian Institution Washington, D.C.

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3 435 IN-KIND GIFTS AND DEVELOPMENT ISSUES Sara Geelan Julian Saenz Associate General Counsel Associate General Counsel The Solomon R. Guggenheim National Gallery of Art Foundation Marsha Shaines Deputy General Counsel Smithsonian Institution 1. Panel addresses all non-cash/financial instrument gifts other than objects for the collection. However, issues of valuation and proper acknowledgement, discussed below, apply in the context of collection items as well. 2. Types of in-kind gifts: (i) Goods, equipment -to use in museum (carpeting, furniture for museum, liquor for party) -to sell outright for cash (miscellaneous goods [e.g. donation of contents of house], goods for sale in museum shops, good similar to collection items) -to sell as part of charity auction -host a party or dinner at donor s expense (absorbing all costs of party) -use of equipment (copying machines) -cars, boats, airplanes (ii) Services -professional services (IT, website design, videos for an exhibition) -media services (advertising in donor s publication, advertorials) -volunteer services (directly to museum, service trips for benefit of museum ) -to sell as part of charity auction (iii) Real Property -to use or operate for museum purposes -to use or operate for unrelated purposes -to flip for cash (iv) Intangibles -intellectual property -license for museum to use -transfer of ownership for museum to license others -oil and mineral rights -easements (v) Partnership Interests or Shares in Non-Publicly Traded Companies (vi) Life Insurance 3. General issues Consider the usefulness of the contribution. Some gifts are difficult or costly to maintain, some are difficult to sell, and others may carry significant liabilities. (i) Process how will proposed gifts be evaluated? Consider a Gift Acceptance Policy (see examples included in these materials, as Attachment1). Although such policies

4 436 do not seem to be widely adopted by museums, they appear to be common at universities. Note: The current draft of the revised Form 990 for tax year 2008 includes on Schedule M: Non-Cash Contributions the question "Does the organization have a gift acceptance policy that requires the review of any non-standard contributions?" To date, the Internal Revenue Service has not provided any guidance on what "non-standard contributions" are. (ii) With or without a written gift acceptance policy, the following questions should be asked: (a) Do you really need what s being offered? Can you really use it? (b) Does the donation offer budget relief, or is it a "bonus" for the museum? (c) What is the cost to the museum of accepting the gift (e.g., managing real estate, paying life insurance premiums)? (d) Are there restrictions on the gift limiting the museum's ability to sell it? Is there a required holding period? If so, why? Is the gift contingent on using the gift for a particular purpose (e.g., operate a branch museum in donated property)? (e) Is there a market for the gift? What are the real and administrative costs associated with selling the gift (e.g., commissions, broker fees and staff time)? How will the museum choose a method for selling the gift (e.g., auction, private sale, ebay)? (f) Is the donor seeking a direct or indirect benefit in connection with the gift? In an extreme example, a transaction that involved a transfer of an in-kind gift back to the donor at less than its fair market value was characterized as a private-benefit transaction, which could result in the loss of the charity's taxexempt status. See Attachment 2. (iii) Documentation. (a) Gift Agreement clearly identifying donee's rights and responsibilities with regard to the gift, especially a right to resell the work. See sample agreement for gift of goods or services, Attachment 3. (b) Deed of Gift for goods donated for charity auctions. See sample form, Attachment 4. (c) Warranties - for gifts of equipment, make sure to get all standard warranties. See sample donation agreement, Attachment 5. (d) Copyright for gifts of certain professional services, it may be important to ensure that copyrights are transferred to the museum or, at least, adequate licenses for the museum's expected uses are obtained (e.g., for gifts of IT services, Web site design, photography, videography and unpaid writing submissions for publications). See sample promotional sponsorship agreement, Attachment 6. (e) If a donor plans to take an income tax deduction for an in-kind gift of more than $500, the donor will have to file a Form 8283, signed by the museum. If the museum, within 3 years of the gift, disposes of the property for which it signed a Form 8283, it must file a Form 8282, and provide a copy to the donor. See copies of these forms, Attachment 7. 2

5 437 (iv) Special Deductibility Rules (a) Intangibles -Intellectual Property - special IRS rules limit deductibility. See Form 8899, Attachment 8. mineral rights more liabilities than benefits? (b) Cars, boats, airplanes special IRS rules limit deductibility. See Form C, Attachment 9. (c) Real property - Retained life estates although generally an income tax deduction is only available for a gift of a present interest in property, Internal Revenue Code 170(f)(3)(B)(i) allows an income tax deduction for gifts of a personal residence or farm, subject to a donor's right to continue to occupy the property for his or her lifetime. - For real property donated for immediate sale, a buyer waiting in the wings can impact donor's charitable contribution deduction. (d) Services - Generally not tax deductible as charitable contribution, but certain expenses related to volunteer or contributed services may be deductible. See example of an acknowledgment of volunteer services, Attachment 10, and example of an acknowledgement of a gift of hosting an event, Attachment A museum may organize service trips in which participants perform work for the benefit of" the museum. Although the participant's volunteer time is not deductible, fees and expenses related to the trip may be deductible to the participant, including a participation fee paid to the museum. The focus of such a trip must be work and furtherance of the museum's mission, rather than "fun." Such trips are different from travel tours with educational content that may be deemed to be mission-related and therefore not subject to Unrelated Business Income Tax. 4. Valuation issues: (i) How is value determined for purposes of donor credit? Will in-kind donors be acknowledged in the same manner at donors of cash in annual reports or donor walls? Will the museum accept donor s valuation or only credit the donor with the amount of budget relief provided? If the donor provides the charity with a qualified appraisal of the goods, in connection with a Form 8283, would that value be accepted by the museum? Note: if the museum is giving the donor membership or sponsorship-type benefits in recognition of the in-kind gift, the deductibility of the gift (if any) will be reduced by the value of the goods and services offered in exchange. Internal Revenue Code 170(f)(8). See a sample acknowledgment for an in-kind gift, Attachment 12. (ii) How will the museum value the gift for its own reporting purposes (e.g., on Form 990, state reporting forms, audited financial statements)? Is it acceptable to report a value different from the "donor credit" value? 3