What’s that saying about not looking a gift horse in the mouth? With lukewarm growth in total giving — only 1.5% in 2012* (adjusted for inflation) — it’s hard to imagine turning down a gift. However, noncash gifts-in-kind can present problems.
Gifts that aren’t suited to your mission, for example, or gifts that come bearing donor-imposed conditions or restrictions could create problems for your organization. So regardless of how attractive a gift seems, you may be better off declining the offer.
Here are some additional things to ponder as you weigh the pros and cons of accepting gifts-in-kind.
From a purely practical standpoint, you need to determine whether your organization has the necessary skills to effectively manage the type of gift being offered. There may also be cost factors to consider.
Real estate is a perfect example. You might have to deal with restrictions on the property’s use, encumbrances, potential unrelated business income tax (UBIT) on income from the rental or sale of the property, carrying and management costs, marketability, and environmental concerns. Gifts of closely held securities and other business interests may also raise marketability and UBIT issues.
If you accept a noncash gift, you will need to assign a value — for both tax and accounting purposes. IRS Publication 561, Determining the Value of Donated Property, provides that donors may deduct the fair market value (FMV) of the property on the date it is donated. FMV is defined there as “the price that property would sell for on the open market . . . [and] that would be agreed upon by a willing buyer and a willing seller.” That definition is then followed by pages and pages of examples, explanations, exceptions, etc. In other words, establishing the value of noncash gifts can be tricky.
All contributions must be reported on your annual Form 990. In addition, if you accept certain types of noncash gifts** and/or noncash gifts totaling more than $25,000 during the year, the IRS requires you to provide additional information on Schedule M, Noncash Contributions, including the method used to determine the value of the gifts.
Make It a Policy
Schedule M also asks whether your organization has a gift acceptance policy requiring that “non-standard contributions” be reviewed. Lack of an affirmative reply is almost certainly a red flag! If your organization accepts noncash gifts (or plans to in the future), having a strong gift acceptance policy is a must — and not just because the IRS asks if you have one.
Outlining the types of gifts you will accept lays the groundwork for decision-making and provides your leadership and your development staff with guidance about the types of gifts they can solicit and the types they should avoid. A well-thought-out gift policy also provides donors and their professional advisors with the guidance they need for tax and other purposes.
Your policy should:
- Establish procedures to determine whether a potential gift is useful to your organization
- State that your organization will seek legal advice when appropriate
- Identify limitations (such as minimums or maximums relating to charitable gift annuities) that you may want to impose
- Explain the types of restrictions, if any, donors will be permitted to place on their gifts
- Make it clear that donors are responsible for securing any appraisals they need for tax purposes
- Outline the circumstances under which your organization may obtain an independent appraisal
- Describe how gift acknowledgments will be handled, identify the person who will communicate with donors, and establish a time frame for doing so
- Establish a procedure for making future amendments to the policy
* Giving USA 2013, An overview of giving in 2012, Researched and written by Lilly Family School of Philanthropy, Indiana University
** Contributions of art, historical treasures, or other similar assets or qualified conservation contributions