Valuation and Reporting of Non-Cash Contributions
All tax-exempt organizations are required to maintain detailed records of and report all non-cash contributions on their Federal Form 990, Return of Organization Exempt from Income Tax (“Form 990”). There are a number of different methods of measuring the value of these gifts in-kind which can result in disparities in how various tax-exempt organizations report these transactions. The Internal Revenue Service (“IRS”) is beginning to focus more on the valuation of non-cash contributions and the expenditures involved in the transactions so as to ensure the accuracy of the information pertaining to these transactions on the Form 990.
VALUATION TIPS
Recently, the American Institute of Certified Public Accountants (“AICPA”) issued six tips for tax-exempt organizations to follow as they perform a valuation of their non-cash contributions. They are as follows:
- Intent is Vital – the tax-exempt organization is legally obligated to abide by any restrictions that the donor has placed on the use of the contribution.
- Focus on Discretion – the tax-exempt organization may have the authority to redirect goods that can no longer be used from one beneficiary to another. If the intended beneficiary no longer needs or cannot accept the goods, does the tax-exempt organization have the discretion necessary to determine the new beneficiary?
- Determine Who Bears the Risk – if the tax-exempt organization takes physical or constructive possession over the non-cash contribution, then the organization would bear both the risks and rewards of ownership.
- Fair Value is Now Based on “Exit” Price – since it is important to develop a reasonable price for the non-cash contribution, tax-exempt organizations should implement and document a standardized process of determining an item’s fair market value.
- Understand the Differences Between Asset Restrictions and Organizational Restrictions – asset restrictions impact the valuation process whereas organizational restrictions impact the net asset classification.
- There is No “One Size Fits All” Approach – tax-exempt organizations should always use their judgment when valuating non-cash contributions as each situation will be unique.
FORM 990 REPORTING
Tax-exempt organizations are required to report all non-cash contributions on their Form 990. Schedule B, Schedule of Contributors, is used to report the donor’s name, address, value of the donation and a brief description of the item(s). Schedule M, Non-cash Contributions, is used to summarize the non-cash contributions by type and further provides detail as to the number of items contributed total value and method of valuation. Schedule M also requires disclosure of the number of Forms 8283, Non-cash Charitable Contributions, that were received during the year, whether or not the organization has a gift acceptance policy, whether or not the organization hires third parties or related organizations to solicit, process or sell any of the non-cash contributions, and whether they must hold any of the contributions for at least three years from the contribution date. It is important to note that Schedule M is only required to be prepared and filed if the organization reported an aggregate amount of non-cash contributions on Form 990, Part VIII, Ling 1g in excess of $25,000. The exception to this rule applies to those organizations which receive donations of art, historical treasures, or other similar assets or qualified conservation contributions, without regard to whether the organization reported any revenue on Form 990, Part VIII for these donations.
CONCLUSION
As tax-exempt organization gather the information related to non-cash contributions in preparation of their current year Form 990, they should consider the above tips to ensure that the proper values are reported on Form 990 for these donations.
A copy of Form 990 Schedule B and Schedule M and their respective instructions can be accessed at the healthcare services section of our firm’s website.
For more information on the topics discussed or services we can provide, please contact:
Scott Mariani, JD, Partner
Practice Leader
973.898.9494 ? [email protected]
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To ensure compliance with U.S. Treasury rules, unless expressly stated otherwise, any U.S. tax advice contained in this communication is not intended or written to be used, and cannot be used, by the recipient for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code.
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