CHARITABLE GIFTS - IMPROVING FINANCIAL & TAX REPORTING

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1 CHARITABLE GIFTS - IMPROVING FINANCIAL & TAX REPORTING Joyce A. Dulworth, CPA Partner jdulworth@bkd.com Daniel J. Waninger, CPA Director dwaninger@bkd.com 1

2 TO RECEIVE CPE CREDIT Participate in entire webinar Answer polls when they are provided If you are viewing this webinar in a group Complete group attendance form with o Your printed name, signature & address All group attendance sheets must be submitted to training@bkd.com within 24 hours of live webinar Answer polls when they are provided If all eligibility requirements are met, each participant will be ed their CPE certificates within 15 business days of live webinar Welcome Cash Donations Noncash Donations Recent IRS Activity Accounting Issues with Donations Questions 2

3 QUICK FACTS & FIGURES 2015 Charitable contributions reached $ billion Individuals gave $ billion Foundations gave $58.46 billion Remaining $50.21 billion were from bequests & corporations Individuals, families & bequests combined account for 85% of all charitable giving Religious organizations received 32% Educational institutions received 15% Human service organizations received 12% Cash Donations 3

4 CASH CONTRIBUTIONS Donor must maintain bank record or written acknowledgment from charity for any monetary contribution BEFORE donor can claim charitable deduction on his/her tax return CASH CONTRIBUTIONS For donations (including noncash donations) less than $250, donor must maintain written record of donation Bank record (canceled check) Written communication from charity Name of charity Date of contribution Amount of contribution 4

5 CASH CONTRIBUTIONS Donor is responsible for obtaining written acknowledgment from charity for any single contribution of $250 or more BEFORE donor can claim charitable deduction on his/her federal income tax return Reminder Private foundations are also subject to gift receipt rules even if donor is founder CASH CONTRIBUTIONS Written Acknowledgment Contributions paid via payroll deduction may rely upon the following Pay stub or Form W-2 or Wage & tax statements or other employer-provided documentation AND Pledge card or other document prepared by organization Must include statement that no goods or services were provided in connection with donation if amount of single payroll deduction is $250 or more 5

6 CASH CONTRIBUTIONS Written Acknowledgment Name of organization Amount of cash contribution Statement that no goods or services were provided by organization in return for contribution Description & good faith estimate of value of goods or services, if any, the organization provided in return for contribution Statement that goods or services, if any, consisted entirely of intangible religious benefits, if that was the case CASH CONTRIBUTIONS Written Acknowledgment Donor s social security or employer identification number isn t required Separate acknowledgment for each single contribution of $250 or more or one acknowledgment for total 6

7 CASH CONTRIBUTIONS Written Acknowledgment No IRS standard forms available Letters, postcards & computer-generated forms are allowed Paper copy or electronic addressed to donor CASH CONTRIBUTIONS Written Acknowledgment January 2016 IRS withdrew proposed regulation that would have offered donee organizations an optional method to substantiate charitable contributions Donee organizations would complete information reporting form (with donee taxpayer identification number) allowing IRS to access information, if needed, during examination 7

8 CASH CONTRIBUTIONS Written Acknowledgment Donor must receive acknowledgment at the earlier of Date the donor actually files his/her tax return or Due date (including extensions) of tax return Donor is responsible for obtaining written acknowledgment Noncash Donations 8

9 NONCASH CONTRIBUTIONS Types of Noncash Contributions Securities/Property Goods & Services Quid Pro Quo Qualified Intellectual Property Motor Vehicles, Boats & Airplanes NONCASH CONTRIBUTIONS Securities/Property Tax benefit for donor Long-term property = deduction equal to fair market value of property donated with no capital gain to report (carryover basis to recipient organization) Short-term property = deduction equal to cost basis of property donated Income limitations for donor Same written acknowledgment guidelines as cash except that no dollar amount is required, only a description of donated item 9

10 NONCASH CONTRIBUTIONS Securities/Property Form 8283 Section A, attached to Form 1040 Property less than $5,000 in value & publicly traded securities Name & address of donee organization Description of property Date of contribution Date acquired (can approximate) How acquired (purchase, gift, inheritance, exchange) Donor s cost basis (blank if held more than 12 months or publicly traded securities) Fair market value Method used to determine fair market value NONCASH CONTRIBUTIONS Securities/Property Form 8283 Section B, attached to Form 1040 Property greater than $5,000 in value Same general information Declaration & signature of appraiser Donee acknowledgment Date property was received Affirmation to complete Form 8282 if property sold within 3 years from date of receipt Intention to use property for unrelated purposes Signature (with address & EIN) 10

11 NONCASH CONTRIBUTIONS Form 8282 Filed if donated property sold within three years of donation (only when Form 8283 Section B is required) Helps IRS match value of item at time of sale with valuation at date of contribution Doesn t apply to Items valued under $500 Items consumed by organization Publicly traded securities NONCASH CONTRIBUTIONS Goods & Services Describe any goods or services provided by organization in acknowledgment for donations of $250 or more ( cash or noncash) Provide a good faith estimate of value of goods or services provided Note that this is value & not cost to not-for-profit (NFP) 11

12 NONCASH CONTRIBUTIONS Goods & Services Exceptions Insubstantial goods or services Payment occurs in the context of fundraising campaign, & Fair market value of benefits received doesn t exceed the lesser of 2% of payment or $106 or Payment is at least $53, & the only items provided (mugs, posters, calendars, etc.) bear organization s name or logo & costs $10.60 or less (low-cost article limit) Limits indexed annually for inflation NONCASH CONTRIBUTIONS Goods & Services Exceptions Membership Benefits Exception Provided in exchange for $75 or less & consists of annual recurring rights or privileges such as Free or discounted admission to organization s events Discounts on purchases from organization s gift shop Free or discounted parking Free or discounted admission to member-only events (subject to low-cost article limit) 12

13 NONCASH CONTRIBUTIONS Goods & Services Unreimbursed Expenses Acknowledgment must include Description of items provided by donor, which could include travel expenses, mileage &/or out-of-pocket expenses Statement of whether or not organization provided goods or services in return for contribution Description & good faith value of goods or services, if any, that organization provided in return for contribution NONCASH CONTRIBUTIONS Quid Pro Quo Donation in exchange for goods or services Written disclosure statement to donor who makes a payment in excess of $75, partly as a contribution & partly for goods or services 13

14 NONCASH CONTRIBUTIONS Quid Pro Quo Acknowledgment Includes Statement that amount of contribution deductible for federal income tax purposes is limited to the excess of money (or property) contributed over the value of goods or services provided Good faith estimate of fair market value of goods or services NONCASH CONTRIBUTIONS Quid Pro Quo Examples Donate $1,000 for table at a dinner held by organization Only the amount that exceeds fair market value of the dinner is deductible Purchase item at silent auction Only the amount paid that exceeds fair market value of item purchased is deductible (unless item is donated back to organization) 14

15 NONCASH CONTRIBUTIONS Quid Pro Quo Penalties Charities that don t meet written disclosure requirement are subject to penalty of $10 per contribution, not to exceed $5,000 per fundraising event or mailing NONCASH CONTRIBUTIONS Qualified Intellectual Property Patents, copyrights, trademarks, trade names, trade secrets, certain software, etc. Form 8899 reports net income received from donated qualified intellectual property File with donor & IRS Donor may be allowed additional charitable deduction based on income 15

16 NONCASH CONTRIBUTIONS Motor Vehicles, Boats & Airplanes File Form 1098-C with IRS Copy B may serve as written acknowledgment if furnished to donor within 30 days after Date of sale in arm s-length transaction to unrelated party Date of contribution if organization certifies that property won t be sold before completion of material improvements (repairs) Date of contribution if organization certifies that property will be transferred to a needy individual in furtherance of its exempt purpose Form 8282 still applicable if property is disposed of within 3 years APPRAISALS In general, required for donated property exceeding $5,000 Deduction of more than $5,000 must complete Section B of form 8283 Deductions over $500 for certain clothing or household items (not in good used condition) 16

17 APPRAISAL EXCEPTIONS Nonpublicly traded stock of $10,000 or less Vehicle (including car, boat or airplane) for which your deduction is limited to gross proceeds from its sale Qualified intellectual property, such as patent Certain publicly traded securities if regularly traded Inventory & other property donated by corporation Qualified contributions for care of the ill, needy or infants within the meaning of section 170 (e)(3)(a) of the Internal Revenue Code Stock in trade, inventory or property held primarily for sale to customers in ordinary course of trade or business. QUALIFIED APPRAISAL Prepared, signed & dated by qualified appraiser in accordance with generally accepted appraisal standards Meets relevant requirements of Regulations section 1.170a- 13(c)(3) & Notice , I.R.B. 902 Relates to an appraisal made not earlier than 60 days before date of contribution of appraised property Doesn t involve prohibited appraisal fee 17

18 INFORMATION REQUIRED ON QUALIFIED APPRAISAL Description of property In case of tangible property, the physical condition Date (or expected date) of contribution Date on which property was appraised Appraised fair value of property on date of contribution Method of valuation used to determine fair market value Specific basis for valuation INFORMATION REQUIRED ON QUALIFIED APPRAISAL Qualified appraiser s name, address, taxpayer identification number & statement on employment Qualified appraiser s qualifications Statement that appraisal was prepared for income tax purposes Terms of any agreement or understanding entered into (or expected to be entered into) by or on behalf of donor or donee that relates to the use, sale or other disposition of property contributed 18

19 QUALIFIED APPRAISER Individual has either Earned an appraisal designation from a recognized professional appraiser organization or Met certain minimum education & experience requirements For real property, appraiser must be licensed or certified for type of property being appraised in the state the property is located For property other than real property, appraiser must have successfully completed college or professional-level coursework relevant to property being valued, must have at least 2 years of experience in trade or business of buying, selling or valuing type of property being valued & must fully describe in appraisal his/her qualifying education & experience Individual regularly prepares appraisals for which he/she is paid QUALIFIED APPRAISER Individual demonstrates verifiable education & experience in valuing type of property being appraised Individual hasn t been prohibited from participating before IRS under section 330(c) of title 31 of US Code at any time during the 3-year period ending on date of appraisal Individual isn t an excluded individual 19

20 AMOUNT GIVEN IN A SINGLE DONATION TYPE OF DONATION LESS THAN $250 $250 TO $500 MORE THAN $500, UP TO $5,000 MORE THAN $5,000 CASH Bank record or written receipt from charity showing donee name, date & amount of contribution unless donation is to charitable remainder trust Bank record or written receipt from charity showing donee name, date & amount of contribution Acknowledgment Bank record or written receipt from charity showing donee name, date & amount of contribution Acknowledgment Bank record or written receipt from charity showing donee name, date & amount of contribution Acknowledgment 1. PUBLICLY TRADED STOCK Receipt or Reliable written NONCASH Acknowledgment & Reliable written Acknowledgment & Reliable written Acknowledgment & Reliable written AMOUNT GIVEN IN A SINGLE DONATION TYPE OF DONATION LESS THAN $250 $250 TO $ NONPUBLICLY Receipt or TRADED STOCK Reliable written 3. ARTWORK Receipt or Reliable written 4. VEHICLES, BOATS & AIRPLANES Receipt or Reliable written Acknowledgment & Reliable written Acknowledgment & Reliable written Acknowledgment & Reliable written MORE THAN $500, UP TO $5,000 MORE THAN $5,000 Acknowledgment & Reliable written Acknowledgment, Reliable written, Qualified appraisal & Declaration of appraiser & donee acknowledgment (Form 8283 Section B) Acknowledgment Acknowledgment, & Reliable written, Reliable written Qualified appraisal & Declaration of appraiser & donee acknowledgment (Form 8283 Section B) Acknowledgment Acknowledgment & Qualified appraisal if deduction is FMV 20

21 AMOUNT GIVEN IN A SINGLE DONATION TYPE OF DONATION LESS THAN $250 $250 TO $ ALL OTHER Receipt or NONCASH Reliable written DONATIONS 6. PAYROLL DEDUCTION Acknowledgment & Reliable written MORE THAN $500, UP TO $5,000 MORE THAN $5,000 Acknowledgment & Acknowledgment, Reliable written Reliable written, Qualified appraisal & Declaration of appraiser & donee acknowledgment (Form 8283 Section B) Pay stub, Form W- Pay stub, Form W- Pay stub, Form W-2 Pay stub, Form W-2 or 2 or other record 2 or other reliable or other reliable other reliable written record from employer written record from written record from from employer Pledge card from employer employer Documentation from donee showing donee's name Documentation from charity Documentation from charity charity 7. OUT-OF- Receipt, canceled POCKET EXPENSE check or other WHILE SERVING reliable written AS A VOLUNTEER Receipt, canceled check or other reliable written Acknowledgment Receipt, canceled check or other reliable written Acknowledgment Receipt, canceled check or other reliable written Acknowledgment Recent IRS Activity 21

22 IRS ACTIVITY ON THE RISE Proper substantiation of charitable donations has become a focus area for IRS While it is donor s responsibility to obtain proper documentation from charity, charities that receive donations should understand rules to ensure they provide proper documentation to their donors RECENT IRS ACTIVITY Kunkel T.C. Memo In 2011, taxpayer made cash contribution of $5,140 & noncash of $37,315 Noncash gift of $13,115 given to church for flea market no receipt Other noncash gifts to Goodwill, Purple Heart & Vietnam veterans Noncash gifts over $500 require additional reliable 22

23 RECENT IRS ACTIVITY Beaubrun T.C. Memo In 2009, taxpayer made cash donation of $3,230 to her church Church provided acknowledgment of gift in September 2014 Acknowledgment didn t contain statement that no goods or services were received Charitable contributions over $250 to church were denied RECENT IRS ACTIVITY Gemperle T.C. Memo In 2007, taxpayer made a qualified conservation contribution Tax return filed included Form 8283 Noncash Charitable Contributions No appraisal of contribution was attached Court reduced value of contribution 23

24 RECENT IRS ACTIVITY French T.C. Memo In December 2005, taxpayers made a conservation easement Tax return filed & amended by April 15, 2006, to claim charitable deduction Written acknowledgment letter dated June 6, 2006, from charity Court also reviewed deed to determine if it qualified as a contemporaneous written acknowledgment Accounting Issues with Donations 24

25 CONTRIBUTION VS. EXCHANGE TRANSACTION VS. AGENCY TRANSACTION Contribution revenue recognized upon notification Exchange transaction revenue earned as services are performed or as goods are provided Agency transaction revenue isn t recognized FLOWCHART 5-1 DETERMINING WHETHER TRANSFER TO NFP INCLUDES CONTRIBUTION 25

26 CONTRIBUTIONS UNCONDITIONAL VS. CONDITIONAL Unconditional revenue recognized upon notification Conditional revenue recognized upon satisfaction of condition Common source of differences between development & accounting CONTRIBUTED SERVICES Create or enhance nonfinancial assets Require specialized skills & are provided by individuals possessing those skills Would need to be purchased if not otherwise contributed 26

27 GIFTS IN KIND Generally all noncash gifts Items to be sold at fundraising events or as part of mission Contributed fundraising or informational material Contributed advertising, media spots Still have to consider if gift is contribution or agency transaction RECOGNIZING GIFTS IN KIND Should be recorded at fair value Difficulties Items received with no active markets Receipt of items NFP wouldn t otherwise purchase, leading to unfamiliarity with market NFP doesn t utilize for highest & best use 27

28 FAIR VALUE CONSIDERATIONS Items to be sold at fundraising events Record at fair value on date of gift Adjust difference between fair value recorded & ultimate sales price to original contribution recorded Stock/investment securities Record at fair value on date of gift Best practice is to sell as soon as possible If held difference between date of gift & sale date is investment income/loss CONTRIBUTED FUNDRAISING OR INFORMATIONAL MATERIAL, ADVERTISING & MEDIA SPOTS Encourage public to contribute or help communicate NFP message or mission Are considered contributed assets rather than contributed services Therefore, there is no consideration for whether NFP would have otherwise purchased or not 28

29 CHARACTERISTICS THAT CONTRIBUTION WAS RECEIVED NFP approval of advertisement NFP provides or actively grants permission to use logo NFP provides input on advertisement NFP provides artwork or other materials for advertisement Representative of NFP appears in advertisement CHARACTERISTICS THAT CONTRIBUTION WAS NOT RECEIVED Advertisement runs without seeking or receiving input from NFP NFP is aware advertisement will run but is unable to provide significant input or objection NFP provides minimal input & doesn t have significant influence in determining content of advertisement 29

30 FINAL THOUGHTS Understand it is donor s responsibility to obtain proper documentation Donors should routinely Check written acknowledgment for accuracy Strictly comply with substantiation requirements Ensure independence in negotiations Appraise & report hard-to-value assets RESOURCES Exempt Organizations (EO) Section IRS Publications 526 Charitable Contributions 561 Determining the Value of Donated Property 4302 A Charity s Guide to Vehicle Donation 4303 A Donor s Guide to Vehicle Donation 30

31 QUESTIONS? CONTINUING PROFESSIONAL EDUCATION (CPE) CREDITS BKD, LLP is registered with the National Association of State Boards of Accountancy (NASBA) as a sponsor of continuing professional education on the National Registry of CPE Sponsors. State boards of accountancy have final authority on the acceptance of individual courses for CPE credit. Complaints regarding registered sponsors may be submitted to the National Registry of CPE Sponsors through its website: The information contained in these slides is presented by professionals for your information only & is not to be considered as legal advice. Applying specific information to your situation requires careful consideration of facts & circumstances. Consult your BKD advisor or legal counsel before acting on any matters covered 31

32 CPE CREDIT CPE credit may be awarded upon verification of participant attendance For questions, concerns or comments regarding CPE credit, please the BKD Learning & Development department at QUESTIONS? THANK YOU! FOR MORE INFORMATION Joyce A. Dulworth Daniel J. Waninger

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