Discussion:Tax-exempt org receives donation of non-cash property, and then...

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Discussion Forum Index --> Basic Tax Questions --> Tax-exempt org receives donation of non-cash property, and then...


Discussion Forum Index --> Tax Questions --> Tax-exempt org receives donation of non-cash property, and then...

Harry Boscoe (talk|edits) said:

23 April 2012
How does the 501(c)(3) book this piece of art? Does it carry over the basis of the donor, like tax rules would have it? Does it book the fair market value of the contribution, which seems pushy and arbitrary? Does it put the art on the books at a "conservative" value of a dollar?

Are there *income tax* rules for tax-exempts that may - that will - disagree with whatever GAAP may apply here? I'm pretty sure the tax-exempt org has an annual audit and publishes "audited" financials.

Are we headed into "two sets of books" here?

This is **not** my field of professional expertise, as if anybody cares...

Podolin (talk|edits) said:

23 April 2012
How does the 501(c)(3) book this piece of art? Does it carry over the basis of the donor, like tax rules would have it? What tax rules? Do you assume the same rules apply as would if the gift were to a private party? Are you sure?

Are we headed into "two sets of books" here? Why would the org. need a set of "tax books" (if there is, indeed, a difference from GAAP?

Harry Boscoe (talk|edits) said:

23 April 2012
You tell me; I'm asking the questions here.

Podolin (talk|edits) said:

23 April 2012
OK, let's make this a process. We will get to answers eventually. (But you may have to do more than ask questions). So, it has been a long time since I have looked at the rule that allows capital assets to be valued (for Sec 170 purposes) at FMV (subject, of course, to a bunch of special rules and exceptions), but, absent that rule (wherever and whatever it is), wouldn't there be a taxable gain upon the gift to the org.? So, if I am right about that, then there has been sort of a gift (without which we would not have a deduction) and sort of a sale (which would have been taxable but for the rule that says it isn't).

Or am I all wet on this,because there was a gift, not a "sale or exchange", so the "rule" is not so much that the "gain" isn't taxable, but rather that the deduction is measured on FMV even though the basis carries over?

Harry, don't bother answering just yet. I suspect there will be oodles of posts on this one before your wisdom kicks in to solve this for us.

Podolin (talk|edits) said:

23 April 2012
Also: Org. does not even know the tax basis of the donor (really, the donor's gift, but we knew what you meant). And, as this Discussion:Medical Equipment - Sell, Donate, Private Gift? points out, there are situations in which the deductible amount of a gift of property may be very different from either its basis or its FMV, yet another unknowable fact for the org.

Podolin (talk|edits) said:

23 April 2012
HERE ARE SOME RANDOMLY SELECTED BUT RELEVANT EXTRACTS FROM THE 990 INSTRUCTIONS. THERE ARE INCONSISTENCIES IN APPROACH, BUT GENERALLY REQUIRE FMV REPORTING OF PROPERTY DONATIONS. Report the value of noncash contributions at the time of the donation. For example, report the FMV of a donated car at the time the car was received as a donation. Donations of services (such as the value of donated advertising space or broadcast air time) or donations of use of materials, equipment, or facilities, even though reporting donated services and facilities as items of revenue and expense is called for in certain circumstances by generally accepted accounting principles. The optional reporting of donated services and facilities is discussed in the instructions for Form 990, Part III. The organization must report any contributions of conservation easements and other qualified conservation contributions consistently with how it reports revenue from such contributions in its books, records, and financial statements. Contributions are reported on line 1 regardless of whether they are deductible by the contributor. Reporting on line 1 according to SFAS 116 (ASC 958) generally is acceptable (though not required) for Form 990 purposes, but the value of donated services or use of materials, equipment, or facilities may not be reported. Unreimbursed expenses of officers, employees, or volunteers. Donations of services (such as the value of donated advertising space or broadcast air time) or donations of use of materials, equipment, or facilities, even though reporting donated services and facilities as items of revenue and expense is called for in certain circumstances by generally accepted accounting principles. The optional reporting of donated services and facilities is discussed in the instructions for Form 990, Part III.

Given this approach in the instructions (which we have learned do not always need to be followed - see Discussion:Two sch c or 1, I conclude FMV is the general rule, but there can be differences and GAAP does not always (or even ever) control. So there!

Harry Boscoe (talk|edits) said:

23 April 2012
As much as it may surprise some of you, this is a legit question, not a brain teaser or a pop quiz. I think it's a painting of the tax-exempt's building that was contributed to the organization and I think that the donor has claimed a quite substantial FMV deduction for the contribution. And I'm trying to help the 501(c) organization with its accounting, without having to learn everything there is that might have to be learned, just by tapping into the resource here at world-famous TaxAlmanac....

I'm pretty sure that the tax-exempt has *no* interest in getting the thing appraised, and I'm pretty sure they have very little interest in asking the donor what his basis in the property (touché, Len) was.

EmpireCPA (talk|edits) said:

23 April 2012
Harry, I am not sure if you are saying this is a work of art(op) or the painting of the building (or both), but GAAP will generally require recognition of income equal to FMV. If they are subject to an audit, I would prepare a reasonable estimation of the value, and let the auditor know the situation. Depending on the size of the organization and the value of the work, the auditor may accept the estimate and move on. If they do not, address their concerns then. If it is a work of art, and the organization maintains "collections," the treatment could be different.

RobAZCPA (talk|edits) said:

23 April 2012
If you checked a) the box for accrual basis and b) the box stating that the org's financials were audited by an independent firm, then GAAP absolutely controls. Any reconciliation to donated services or facilities is found on Schedule D of the 990, and is used to avoid the "two sets of books." In fact, everything Podolin read from the instructions is consistent with GAAP.

With that said, read FASB ASC 958-605-30-11, which is the only authoritative GAAP source on this. It more or less states that in-kind gifts that can be used or sold are measured at fair value. It goes on to describe some considerations of fair value specific to nonprofits. The ASC is copyrighted, but you can get access at asc.fasb.org by signing up for a free account.

Appraisal is not required on the part of the org, which will simply acknowledge FMV to the donor and book FMV at the time of donation. The fair value concept is in the Master Glossary of the FASB ASC. Under audit, if the gift is large enough to bother, the auditor will analyze your assumptions and significant estimates or studies of comparable sales as needed.

The donor is on his own with regard to basis in the gifted object. You'll help him out, I'm sure, but it's not the job of the organization.

HowardS (talk|edits) said:

23 April 2012
Our local Arts Council often receives donated "works of art". They normally call in a competent artist (my wife) to get an unofficial appraisal, just to get something for the books. If the donor was the artist, she/he can only deduct cost of materials, but that is another discussion.

Captcook (talk|edits) said:

23 April 2012
Harry, there is definitely no requirement for matching to the extent Podolin suggests above. Also, I highly suggest you not provide any statement of value to the donor as Rob suggests. You have no requirement to do so. The donor must do his/her own due diligence to claim a deduction.

As the organization will "use" this asset in furthering their mission (as opposed to holding it for sale), I would take reasonable steps to determine a value and book the income/asset. Again, there is NO requirement for your value to equal the deduction taken by the donor.

Podolin (talk|edits) said:

24 April 2012
When I said GAAP does not always (or even ever) control., I was referring to the fact that GAAP does not control 990 reporting.

RobAZCPA (talk|edits) said:

24 April 2012
Captcook, I hope you're not trying to say that the org should not provide an acknowledgement to the donor. The donor's charitable deduction cannot be upheld without it. A listing of the items received by the org is sufficient. Although there is no penalty to the org for not providing such a list of donations received, you'll find that donations tend to dry up without a process for acknowledgement. As a best practice, the donor should not even have to ask.


To Podolin, GAAP controls 990 reporting if you check the box for the accrual basis. As I stated above, you'll find that the IRS instructions you quoted so eloquently are fully consistent with GAAP in every way except donations of services and facilities, which are ultimately reconciled to the GAAP financial statements. Provided that your 990 is GAAP compliant, it is also IRS compliant (subject to the single exception above). If you think the folks at the IRS are competent, you might even accuse them of having read the GAAP requirements before they wrote the instructions.

Harry Boscoe (talk|edits) said:

24 April 2012
I'm very up on - I am all over - the "acknowledgment/acknowledgement" requirements imposed by the Code and IRS on the donor and what's needed in that regard by the donor from the donee. It is *only* the accounting for the "piece of art" by the 501(c) that's on the table right now. The tax-exempt doesn't want to offend the donor by putting a value lower than what he's claimed on their books, and at the same time they really don't want to overvalue it on their books, nor do they want to deem themselves qualified to appraise the gift. [Off the record, the nice folks at the tax-exempt think the donor's claimed value is waaaaaay high. But he claims to have the required qualified appraisal by a qualified appraiser written in qualifed ink on qualified paper...] None of these folks is my client, I'm just an expert bystander, in their eyes.

Captcook (talk|edits) said:

24 April 2012
No, Rob, I am not suggesting the organization not acknowledge the donation. You are correct that they must do this. What I am saying is that they not provide a statement of FMV in that acknowledgement to the donor. In re-reading your comment above (simply acknowledge FMV to the donor), I don't think that is what you were suggesting, but I initially read it that way.

Szptax (talk|edits) said:

24 April 2012
Was there an appraisal of the artwork?

RobAZCPA (talk|edits) said:

24 April 2012
An appraisal by the organization is a complete waste of money if indeed the charitable organization serves the public. Harry is asking a political question more than anything, which is how do you properly value a painting so as not to offend the "artist" and at the same time follow GAAP constraints.

All that needs to be done is find out the highest price a willing buyer would pay for the painting. You can use an appraisal, recent comparable sales, expert opinion, etc. or a combination of methods. A professional appraiser might look at the price for which paintings by the same artist sell. Pub. 561 describes in detail the appraisal and valuation from the donor's side, including penalties for an inflated appraisal. It's up to Harry to decide if he wants to level with the guy (and his appraiser) or not. Again, look at the definition of "fair value" in the FASB ASC glossary. That's all that is required of the organization. A nonprofit should be able to leverage its status and at least get a quick and dirty range from a couple of competent people, if nothing else.

Szptax (talk|edits) said:

25 April 2012
The appraisal isn't done by the non profit - it is done by the donor and for lack of a better term accepted by the non profit. It is done by the person wanting the donation deduction. The non profit then acknowledges the donation and would book at the appraised FMV. If there is no need of the donation deduction on the part of the donor and there is no appraisal, is the organization qualified to estimate the FMV? Do they want the donation enough to have an appraisal done? Do they sell the asset?

RobAZCPA (talk|edits) said:

25 April 2012
Szp, it's true that only the donor is required to get an appraisal and only to the extent he needs it for his own tax return and didn't paint the thing himself. However, both donor and appraiser have an incentive to over-estimate the value of the asset. Appraiser penalties from the IRS kick in for estimating at over 200% of the value of the asset, last I checked. That leaves a lot of room for misstatement.

The only qualification a nonprofit needs to estimate FMV is that the nonprofit issues GAAP financial statements. Neither the nonprofit nor its auditor is required to accept an appraisal at face value. Once again, refer to "fair value" in the FASB ASC glossary. There is no mention of appraisal in that definition, although a reasonable appraisal will provide assurance. If the nonprofit is audited and the asset is material and the auditor needs more assurance, the auditor might ask for an informal appraisal from an expert (maybe the wife of HowardS) or perform his own comparison, but will likely use the value the nonprofit gives to the asset as a starting point for his comparison. Since an appraisal exists and IRS-mandated appraisals require so much detail, the auditor can use the assumptions listed in the appraisal and determine how off base the appraisal is. So the correct answer is No, you will not necessarily accept the appraisal at face value if you are the auditor and the asset is material. Harry mentions that the financials are audited.

For what it's worth, I agree 100% with everything EmpireCPA said above.

Szptax (talk|edits) said:

26 April 2012
Yes the non profit books at fair value (GAAP), and if they believe that the fair value is different than the appraisal they may book it as such and a formal appraisal is not required. The organization should document the FV in some manner. There may be some cost to the organization for the acquisition that can modify the value.

As a practical matter, as long as the amounts are reasonable and the value is >5,000 so that an appraisal is required, the organization will book at the appraised value. Absent an accepted donor appraisal, is the organization qualified to estimate the FMV? Do they want the donation enough to have an appraisal done? Do they sell the asset? Meaning, can they reasonably estimate the value because they are knowledgeable (an expert on staff for example), is there a reference to determine FMV like a publication, if not are they willing to obtain an appraisal to get the estimate of FV. did they sell the asset in an arm's length transaction which would determine FMV?

Every client who has donated art, land, a car etc has received a letter from the charitable organization and the amounts were either at the appraised value or sale value.

Galleries also insure their art, so this is another resource to determine fair value, depending upon the piece.

Captcook (talk|edits) said:

26 April 2012
Every client who has donated art, land, a car etc has received a letter from the charitable organization and the amounts were either at the appraised value or sale value.

Szp, if you are implying that every donation acknowledgement letter also lists the FMV, you are mistaken. I advise every nonprofit I work with not to do so and have prepared tax returns for others receiving such letters absent a statement of value. There is no requirement to list a value. The requirement is acknowledging that a donation occurred.

Szptax (talk|edits) said:

26 April 2012
For a vehicle that is sold, the sale price is listed. This is a requirement.

For the art items there was an appraisal. The same for the land donated to the conservancy. I have been on both sides of the equasion - both and auditor for the not for profit and the preparer of the taxpayers return, not with the same transaction of course. As a practical matter, where ever possible there has been an exchange of documents, of course there are disclosures not to rely on blah blah blah, consult your adviser blah blah blah, but when the organization wants the item and the taxpayer wants the deduction they are motivated to co-operate, discuss and disclose, with the appropriate caveats.

As a practical matter in two instances the appraisal was required by the conservancy and the gallery to which these items were donated and the organizations acknowledged the receipt of the items in a letter and other documents. No specific mention of value was given and we do not know what the organizations put on their books but having been on the not for profit end as well, the appraisal if reasonable, was generally the jumping off point for value. I recall one instance where this was not true (The donation of a property) but in that case the organization sold the property for less than the appraised value which made sense to them due to the carrying costs. Although it was known the donor hoped they would use it for an office, it would not serve their needs.

I am not implying that the value was or is included in every acknowledgement, just that there is an exchange point and often this is the value used by both the donor & the organization.

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