Horses, Software, and Bad Art. The Latest News on Booking Non-Cash Gifts and Giving Credit Where Credit is Due.

Transcription

1 Horses, Software, and Bad Art The Latest News on Booking Non-Cash Gifts and Giving Credit Where Credit is Due.

2 What We ll Talk About Gifts and Donors The Importance of Getting it Right Valuing and Acknowledging Closer Look at Gift Scenarios Disclaimer: I m not an attorney I m not an accountant. Consult your legal counsel or accountant for all gift questions.

3 The Ultimate Question... Is this a gift and who is the donor? This is critical for anyone who works in Advancement Services

4 What s A Gift? A gift is a payment of money or a transfer of property to a charitable organization where the person making the payment or transfer is not receiving anything of consequence (value) in return. (Bruce Hopkins: The Tax Law of Charitable Giving)

5 To Be a Gift, Ask 1. Does it have value? 2. Does it further the mission of my organization? 3. Can I use it? 4. Can it be converted to cash? 5. Is there donative intent? 6. Is it legal?

6 What Isn t A Gift? Time or Services Partial Interest For the benefit of a specific person Raffles, bingos, or lotteries

7 A Donor is Defined by the IRS as someone who makes a contribution directly to a qualified organization for the use of the organization. In order for the gift to be a gift, it must NOT be set aside for use by a specific person. It must NOT be contingent upon the fulfillment of a condition

8 And We define the legal donor as the last entity in legal control of the asset. So whoever made the contribution is the person whose asset it was immediately before it was transferred to you.

9 Why Does It Matter? Legal and ethical implications Reporting Stewardship

10 Reporting on Donors Two basic kinds of reports Financial/Management Reports Focus on the math Each gift counted only once Most important thing is getting dollars right Answer questions about campaigns Donor Recognition Reports Gifts might be listed more than once Most important thing is getting donors right Publicly recognizes donors Recognition reports not subject to rules by CASE, IRS, or CRA rules

11 Donors Rock but know who Rules! IRS CRA (Canada Revenue Agency) CASE Management & Reporting Standards FASB (Financial Accounting Standards Board) GASB (Governmental Accounting Standards Board) The Suits (President, VP Development, etc.)

12 More Rules For donors records should be kept for as long as they may be needed to support information supplied to the IRS. Records that support an item of income, deduction or credit must be kept for 3 years from the date the return is due or filed, whichever is later. (from IRS Form 990) In Canada, records have to be kept for a minimum of six years from the end of the last tax year to which they relate.

13 And Still More Rules Organizations that receive donations must keep sample copies of their fundraising materials, such as Dues statements Fundraising solicitations Tickets (IRS Form 990 Instructions)

14 And Yet Another Rule For each fundraising event, organizations must keep records to show the portion of payment received from patrons that is not deductible; that is, the retail value of the goods or services received by the patrons. (IRS Form 990 Instructions)

15 Reference These IRS Publication 1771 (Charitable Contributions Substantiation and Disclosure Requirements) IRS Publication 526 (Charitable Contributions) IRS Publication 561 (Determining the Value of Donated Property)

16 More to Reference IRS Form 8283 donor completes (Noncash Charitable Contributions) IRS Form 8282 (Donee Information Return for Sale, Exchange or Other Disposition of Donated Property) CRA Website

17 Types of Gifts Cash Gifts Gifts In Kind Planned Gifts Matching Gifts

18 Cash Gifts Most common and simplest to handle Questions to ask Who gets the credit? Soft credit appropriate? Is there Quid Pro Quo? Who gets the acknowledgement? Are all IRS/CRA regulations adhered to when receipted?

19 Planned Gifts Increasingly more common for non-profits Typically larger; much more scrutiny Different types and more complex Bequests Life Income Agreements Retirement Plan Designation Charitable Lead Trust Life insurance

20 Matching Gifts Easy Money Over 1,000 companies participate Match ratios 1:1, 2:1, 3:1 & others Many qualify employees, retirees, spouses, widows, directors Guidelines vary, so consult CASE Matching Gift Clearinghouse or HEPDevelopment

21 Gifts In Kind Not so common and more challenging Tangible Personal Property, Intangible Personal Property, Real Property Should you accept it? Ask. Does this fulfill your mission? Is it something you can use? Can it be converted to cash? Are there special considerations for acceptance? Are all IRS/CRA regulations adhered to when receipted? Who gets the acknowledgement?

22 Tangible Personal Property The term tangible personal property means any property, other than land or buildings, that can be seen or touched. (IRS Pub. 526) Tangible personal property includes: Furniture Collections (art, books, coins, etc.) Jewelry Cars, boats, airplanes Equipment, software Securities Animals

23 Intangible Property Intangible property is property that has value but cannot be seen or touched. (IRS Pub. 526) Intangible personal property includes: Patents and copyrights Customer, membership or subscription lists Designs Franchises

24 Real Property Real Property is land and generally anything that is built on, growing on, or attached to land. (IRS Pub. 526) Real property includes: Improved real estate Unimproved real estate

25 Should We Accept It? Yes, but only IF the GIK is useful to your organization in fulfilling its mission or if it can be accepted and then converted to cash. You might not accept a GIK when It doesn t support your organization s mission It requires you to incur obligations or restrictions that aren t right for your organization or when it costs more to accept than its worth It comes with debt or environmental issues When community relations would suffer

26 What Do I Need to Know? Description of the asset Purpose of the gift, potential use and area it will benefit Good faith estimate or appraisal Account number for recording Special considerations, associated costs How, when, where will you take possession

27 Use? Contributed property must benefit the recipient organization by either: Related Use related to the purpose or function constituting the basis of the charitable organization s exemption. A painting donated to a university and used for educational purposes when art students study it Unrelated Use Unrelated to the purpose or function constituting the basis of the charitable organization s exemption. A case of wine given to a charitable organization for a fund raising auction

28 Who Cares? Your Donor Might! The deductibility of gifts of tangible personal property is affected by whether the property is put to a related or unrelated use. The Donee Acknowledgement on IRS Form 8283 (Section B for gifts of more than $5,000) asks whether the property will be used for a related or unrelated use.

29 IRS Rules for GIKs Donor must get written acknowledgement for single gift of $250 or more To claim a deduction, donor may be required to complete IRS Form 8283 Donee completes Form 8282 if asset is sold within two years Donee must provide written disclosure for goods/service for gifts of $75 or more

30 Valuing GIKs $5000+: qualified independent appraisal needed to book the gift. Donor may need to complete IRS Form 8283 Less than $5000: FMV as stated by donor is acceptable Canadian GIKs must be appraised if FMV is $1000 or more Unsure? Record GIK as $1. Good faith estimate is defined as estimate of FMV

31 Saying Thank You Means never having to say you re sorry. Acknowledgements must Have the name of donor Have the name of donee organization Description (not value) of non-cash gifts (Note in Canada a value is placed on the GIK receipt) Statement that no goods or services provided if that s the case Description & good faith estimate of value of goods/services provided

32 GIK Receipts & Acknowledgments U.S. receipts for GIKs should be acknowledged by providing ONLY a description of the asset donated. No value should be stated. Xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx But what if the donor insists? Try saying this Thank you for your gift of a thing which you have valued at $XX.

33 Sample Acknowledgement Text Dear Donor: Thank you for your gift of an original work of art entitled Life on the Bayou (1997 oil painting on canvass, 35 x 29 by artist George R.) which will be added to the University Art Museum s permanent collection and will be used by our faculty for instructional purposes. Should you wish to deduct this gift, you may be required to complete IRS Form Please note that valuation of in-kind gifts is the responsibility of the donor. Please consult your tax advisor. Federal income tax law requires us to state that no goods or services were provided to you in consideration of this gift. Your generous donation of this gift in kind to the University of Louisiana at Lafayette is appreciated. Thank you for your continued support of the university. Sincerely,

34 Who s the Donor? Is this a Gift? A closer look at gifts and donors

35 A Gift? How Much? Mr. Painter, renowned artist, donates to his alma mater one of his original paintings which has a FMV of $25,000. How do you acknowledge?

36 The IRS Says An individual may make a contribution to a charitable organization of an item which was created by the donor, such as a painting. However, the charitable deduction for this type of gift is not based on the FMV; instead, it is confined to the donor s cost basis in the item.

37 A Gift? How Much? Mr. Rich donates use of an apartment to the university to house a visiting professor for the academic year (10 months). The rental on the apartment is $1200 per month. How would this be acknowledged?

38 The IRS Says No IRS recognized charitable contribution. This falls under the IRS s definition of partial interest. No ownership no gift.

39 A Gift? How Much? Mr. Costeau wants to donate his prized glass dolphin collection that he says is worth $10K with the condition that if it is sold the proceeds must go to his favorite professor, Dr. Beach.

40 The IRS Says There may be no charitable contribution here because this is a conditional gift. For a gift to be a gift, there should be no demands placed on the gift by the donor. Without the condition the gift would be worth the FMV as verified by an independent appraisal.

41 A Gift? How Much? Mr. Bigg has decided to gift to your university a coin collection valued at $7,500. What should be considered when acknowledging this gift?

42 The IRS Says First to book a value, this gift should have an independent appraisal. Gifts under $5K may be recorded using donor s good faith estimate (if you have some documentation to value the gift) gifts over $5K should be appraised. Second the university should determine if this gift fulfills the mission and whether this collection would be kept or sold.

43 A Gift? How Much? Mrs. Wealthy, chairman of the board, attended a dinner for a group of key donors. When the bill came, she insisted on paying, asking for a charitable contribution receipt from your institution. What would have been the best way to handle this?

44 The IRS Says Ideally the tab should have been paid by the university and then the donor could have written a check to the school to cover this expense. With proof of the paid bill (copy of bill, check or personal credit card statement), this can be recorded as a GIK.

45 A Gift? How Much? The University Foundation has a fund raising gala and auction. Mr. Wilde donates a couple of football season tickets valued at $500. Mrs. Fann is the successful bidder and buys the tickets for her husband for $750. How would Mr. Wilde and Mrs. Fann be acknowledged?

46 IRS Says Mr. Wilde should receive a Gift in Kind receipt stating his donation of two season tickets. Though his receipt would not state the value, the gift could be booked into your donor system at the $500 value. A donor contributing an item to be used in a charity auction is eligible for a tax deduction.

47 IRS Also Says Mrs. Fann s receipt would show only a charitable contribution for the amount in excess of the fair market value. However, if the FMV of the items was not advertised at/before the auction, then the winning bid amount establishes the FMV & there is no charitable contribution.

48 A Gift? How Much? During a recent blood drive for your medical school, Mr. Lestat donated three pints of blood. He requested a receipt showing his contribution. Assuming a fair market value of $35/pint, for how much should Mr. Lestat be acknowledged?

49 IRS Says Nothing IRS says that donation of blood is not tax deductible.

50 A Gift? How Much? Major Computing Corporation has donated to your university the use of special software through a 3-year grant to your College of Engineering. Terms call for the return of the software at the end of the grant period. The software has an educational discount value of $500,000. How would MCC be receipted?

51 IRS Says The IRS says this is a license to use a gift of partial interest and is not a charitable contribution. It is important that the contracts on gifts of software be carefully read to determine whether there is an irrevocable transfer of an asset.

52 IRS Also Says If the gift of software were irrevocable and an actual transfer of property to your institution, then you could book the value of this software at the education discount which is the amount you would pay for the software if you purchased it. The receipt would not state an amount just a description of the software donated. Except in Canada where a stated amount is required.

53 And the IRS Says Any hardware donated as part of the overall gift should be valued at the retail value or the educational discount rate. Also, when the maintenance agreement accompanies a gift of software/hardware, the value of the maintenance agreement cannot be included in fund raising totals because this is a gift of service.

54 A Gift? How Much? Mr. Kent no longer has use for his frequent flyer miles, so he donates some of them to your head football coach to use for recruiting. Your best estimate is that there are enough miles for 5 cross country round trip tickets. How would you value this? How could Mr. Kent be acknowledged?

55 IRS Says According to the IRS, frequent flyer miles are not deductible as a gift since they have no cash value. Internally, you may wish to include Mr. Kent on your donor rolls. But, no value should be reported or recorded.

56 A Gift? How Much? Mr. Weaver gives your university 1,000 shares of Cherokee Corporation stock on September 27, His broker transfers the stock to your broker on the same day. The stock had a high of $100; and a low of $90. Your broker sells the stock the next day at $98 per share. At what value is the stock gift recorded and receipted?

57 IRS Says The stock gift should be booked in your donor system at $95 per share the value of the stock the day it was gifted and transferred to you. The increase in value to $98 per share when sold does not affect the value of the donation. Mr. Weaver s receipt need only mention that stock was donated no valuing required on your part.

58 Valuation of Gifts of Stock If there is an active market on a stock exchange, the FMV or each share is the average between high/low quoted on that day. (Note in Canada the stock value is based on the closing price on the date of gift.) If stocks are listed on more than one stock exchange, then the value is based on the prices of the exchange on which they are principally dealt. If there were no sales on that day, but there were sales within a reasonable period before/after, you determine FMV by taking the average between the highest and lowest on the nearest day before and on the nearest day after.

59 Valuation of Closely Held Stock Gifts of closely held stock that exceed $10,000 should be reported/recorded at the FMV placed on them by a qualified independent appraisal. Gifts of closely held stock of $10,000 or less may be valued at the per share cash purchase price of the most recent transaction. If you accept a gift of closely held (not publicly traded) stock, it should be with the understanding that the stock may not ever be sold.

60 A Gift? How Much? Mr. V. Sly donated his 1980 Ford Pinto to your university. It is in mint condition and his model was among the last to roll off the assembly line. Mr. Sly says that the Pinto is now a collector s item and that his car is worth at least $10,000, his estimated fair market value. How should the receipt for this gift be handled?

61 IRS Says Under the old regulations, car donors could claim the fair market value of the car. However, beginning January 1, 2005, the rules have changed. If the claimed value of a donated motor vehicle exceeds $500 and the vehicle is sold by the donee, then the deduction allowed is equivalent to the gross proceeds of the sale.

62 IRS Also Says Under the new rules, the donee must provide an acknowledgement to the donor within 30 days of the sale stating the amount of gross proceeds. Alternatively, if the charity significantly uses or materially improves the vehicle, the charity must certify this intended use and provide an acknowledgement to the donor within 30 days. In this case, the donor may generally deduct the vehicle s market value.

63 A Gift? Who s the Donor?

64 A Gift? Who s the Donor? Single Person Check Mrs. A. Donor sends a personal check for $1000 to her alma mater. The legal donor is?. Mrs. A. Donor, the individual, is the legal donor.

65 A Gift? Who s the Donor? Joint Checking Account Mr. Rich send a personal check for $500 to his alma mater. Mrs. Rich is not an alumna, but she signed the check on this joint account. The legal donor is?. Mr. and Mrs. Rich, share the legal credit

66 A Gift? Who s the Donor? Group of Individuals Mr. Leader sends a personal check for $1000 to his alma mater. An enclosed letter says that he collected donations from several of his fraternity brothers to make this gift as a group. He provided the names of his frat brothers. The legal donor is?. Mr. Leader gets all the legal credit, but recognition credit should go to all.

67 A Gift? Who s the Donor? Donor Owned Business Mr. Bigg donates $500 to your university for his payment to your annual honor roll. The name on the check is V. Bigg, Inc., A Professional Law Corp. The legal donor is?. V. Bigg, Inc., the corporation, is the legal donor. Soft credit in Mr. Bigg s personal record should be noted.

68 A Gift? Who s the Donor? Charitable Gift Fund A check for $250 is received from Fidelity from the L.T. Gives fund. Mrs. Gives is an alumna of your university. The legal donor is?. Depends. If donor advised, Fidelity is the donor. If donor directed, Mrs. Gives is the donor.

69 Donor Advised vs. Donor Directed Donor Directed Fund when a donor sends cash to a financial institution for investment and safekeeping. The assets remain in the name of, and under the control of, the donor. The donor must contact the financial institution and direct it to issue a donation to the non profit. (CASE Management and Reporting Standards)

70 Donor Advised vs. Donor Directed Donor Advised Fund when a donor sends cash to a tax-exempt organization (often affiliated with a financial institution or a community foundation) and it is considered a gift to that entity. The asset then is in the name of, and under the control of, the organization. The donor receives a receipt from the organization at the time of the gift and then can only suggest or advise that the organization make a donation. (CASE Management and Reporting Standards)

71 A Gift? Who s the Donor? Fundraising Consortia Your university has just received a $4600 check from the local United Way, indicating that several of your alumni listed on an enclosure were the individuals responsible donations totaling $5000. The legal donor is?. The United Way. And the amount receipted is $4600 not $5000.

72 A Gift? Who s the Donor? Faculty Honorarium You just received a large check from a company paid to the order of your institution. The check stub indicates that this money has been directed to you by a faculty member for his service as a facilitator for a company seminar. The legal donor is?. Depends. If the company treats the money as income to the faculty member (and issues a 1099 or T4), then legal credit belongs to the faculty member. If not, then company is legal donor.

73 A Gift? Who s the Donor? Estate Gifts Your alum, John Deaux, passes away. You receive a check for $10,000 from his estate. Is it necessary to set up an account in the name of Estate of John Deaux? The legal donor is?. Depends. If it s a new entity with unique tax id number, as in a Testamentary Trust, then you definitely should. Otherwise, the gift may be credited to the deceased s original record. However, you will certainly want to modify the name on the record for receipting/reporting purposes.

74 A Gift? Who s the Donor? On Behalf of Another Mrs. T. Parent, your alumnus, sends you a check for $500 from her personal checking account as a donation to the annual fund in her son s name. Her son is also an alumnus. A note enclosed with the check explicitly states that this donation is from her son. The legal donor is?. Mrs. T. Parent. Of course, you should soft credit her son s record for this donation.

75 A Gift? Who s the Donor? Insurance Death Benefit The XYZ Corporation has a retirement plan for it s employees that provides a death benefit for those who qualify. Mr. Jones had paid into this plan for many years. He was an employee and your alumnus and he designated your institution as beneficiary. The death benefit is a group term life insurance and is not taxable. The legal donor is?. Mr. Jones.

76 A Gift? Who s the Donor? DBA A check for $500 is received by your institution from Mr. Y. M. Weaver dba Boy Wonder Specialties. The legal donor is?. Mr. Y. M. Weaver.

77 A Gift? Who s the Donor? Company Credit Card During your annual fund raising gala for the football program, Mrs. Ace buys $500 worth of raffle tickets for a Dinner with the Head Coach prize. The tickets are $100 each. Mrs. Ace pays for the tickets with the credit card of her company, Ace Screw & Bolt, Inc. The legal donor is?. Neither. Payment made for raffle tickets is not a gift.

78 A Gift? Who s the Donor? Company Match for Gift of Service The Community First Corporation sends a $500 to your institution on behalf of their employee who sits on your Foundation s Board of Directors. CFC has a program that provides matches based solely on community volunteer services to reward their employees. Your board member designated or directed CFC to list you as the beneficiary of his donations. The legal donor is?. CFC. The gift is from the company unless this money is treated as income to the employee.

79 A Gift? Who s the Donor? Event Sponsorship You hold an annual grad expo at which there is a special dinner where seniors receive their rings for the first time. The ring vendor offers your student committee leaders the option of receiving their rings in walnut boxes (no charge) or the company would instead pay a portion of the dinner. The students choose the cash but would like to make a presentation of this donation to your school and would like to be recognized for this donation. The legal donor is?. The ring vendor provided the check is made to you. However, there are a few ifs usual event & ads.

80 A Gift? Who s the Donor? Gift of a Coupon Our Town Market, a local supermarket, has an incentive program for customers. Each time the customer makes a purchase and scans his supermarket card, the customer accumulates Golden Reward Points. At the end of the year, the customer receives a coupon based on a small percentage of purchases which can be redeemed for cash at the supermarket. Your alum, their customer, gives the coupon to you which you redeem. The legal donor is?. Both. Our Town Market is the legal donor for the cash gift. And the customer is the donor of a gift-in-kind.

81 A Gift? Who s the Donor? In Lieu of Payment to Someone Mr. Booster gives a $1000 check to support the university s Support A Seat campaign which is a fundraiser for the music department. For a $500 donation, a seat in your auditorium is named according to the donor s wishes. Mr. Booster asked that the additional seat be named for Mr. Neighbors who helped him with some work at his home but refused payment. He asked that your office send Mr. Neighbors notice of this gift. Now, Mr. Neighbors wants a receipt since he says this was money owed to him by Mr. Booster. The legal donor is?. Mr. Booster.

82 A Gift? Who s the Donor? Minor s Account Matt Smarts, a 12 year old child prodigy, is a student at your university. He is an avid environmentalist. You receive a $1000 check for your Save the Swamp fund, which is signed by Marie Smarts, an alumna of your school. The check reads: Matt Smarts, Minor Custodians Pierre and Marie Smarts 123 My Street Anytown, USA The legal donor is?. Matt Smarts. It s his money regardless of who put that money in his account!

83 A Gift? Who s the Donor? To Another for Use at Your Institution Mr. Banker is the president of Home Savings & Loan. He decided to provide an area student with a gift equivalent to the amount of your university tuition. A committee at HS&L reviewed the applications and selected the recipient. HS&L gave the check to the lucky student and notified your scholarship office of the student s name. Your scholarship office suggested to you that you should send a recipient. The legal donor is?. There is no legal donation. The student received the check directly. Even if the check had been given to your institution directly, the fact that the person is specified cancels the donation.

84 A Gift? Who s the Donor? Through a Vendor Mr. Bob Farmer, who is a grad of your ag school, purchased a tractor from Green Acres Implements and asked that it be delivered to your university equine center as a gift from him. Mr. Farmer never took possession of the tractor. The owner of Green Acres was so impressed by the donor s gesture, that he sold the tractor at a drastically reduced price, partly based on Mr. Farmer s suggestion that the university might recognize this as a donation, too. The legal donor is?. Mr. Farmer, who would receive a GIK receipt. You might wish to give soft credit of Green Acres.

85 A Gift? Who s the Donor? Matching Gift Switcheroo Tim Parent gave his son, Junior, $1000 to donate to your institution so that it could be matched by his son s company which has a 3:1 matching gift program. Junior sent a check written on his wife s jewelry business, Bedazzled, to the engineering department, along with a matching gift form. The dean forwards the check and form and asks that you send receipts to Tim Parent and Junior Parent. The legal donor is?. Bedazzled. And, if Bedazzled is a separate legal entity and not a DBA situation then NO match form should be submitted.

86 Special thanks to Semere Abiyo & Brian Dowling of the University of Toronto and John Taylor with RuffaloCODY for their assistance with Canadian gift/tax advice. Questions?? More Gift Scenarios?

87 Liz B. Landry Director of Advancement Services University of Louisiana at Lafayette P. O. Box Lafayette, LA