When you receive gifts of products, time and services, be aware that your organization can be held in even greater regard by donors of such In-Kind gifts, should you express your gratitude in a meaningful way—in a manner far and above how these contributions are usually acknowledged by non-profit organizations. This can be accomplished in strict keeping with the applicable IRS rules and regulations, which are especially explicit when it comes to In-Kind gifts and how non-profits handle them.
By law, non-profit organizations cannot provide a donor with the dollar value of an In-kind gift. Such valuations when applicable, relative to “fair market value” of In-Kind gifts, need to be professionally assessed and certified elsewhere—if they can be—and that is the responsibility of the donor. This certification subsequently needs to be resolved with the professionals and others who prepare the donor’s tax forms—whose work in turn will need to be reconciled with IRS regulations. In instances where time and service are donated, no tax break whatsoever is allowed, as the IRS Publication 526 clearly states, “You cannot deduct the value of your time or services…”
This unique aspect of In-Kind gifts often causes a non-profit organization to acknowledge them in understated, and almost offhanded ways, unlike the precisely stated amounts cited for gifts of cash and stocks. As well, the dollar value of gifts of cash and stocks can be directly related to specific programs and services made possible by such support, which is not usually the case with In-Kind gifts. Thus, appreciation of In-Kind gifts is not always expressed as effectively and graphically, but it can and should be.
A non-profit organization can acknowledge In-Kind gifts with descriptions of their practical value to the organization, and make some reference to their worth in dollars—what they might have had to pay “retail.” Most non-profit organizations could treat their In-Kind gifts in somewhat the following way:
Sample Acknowledgment for an In-Kind Gift
“Thank you for your generous gift of ________(Full Description)________ which we received on ____(Date)____. Your generous contribution will help to further the important work of our organization.
(Note: The benefit to the organization of the In-Kind contribution may be expressed in exact terms of its direct application to the organization’s operation, or it may be more appropriate that an indirect reference be made when the In-Kind gift’s application is not as sharply defined.)
While, according to IRS regulations, you will not be allowed to declare the value of your donation from our acknowledgment, we can say that, but for your generosity, we likely would have had to expend approximately $________ for what you gave as an In-Kind contribution. These are dollars saved which we are able to apply directly to support the programs and services we provide for the well-being of those whom we serve in our community.”
Recognition: Same as Cash
In addition, appreciation of in-kind contributions can always be publicly recognized by non-profits in their annual reports and other publications, with the donors’ names listed under the respective gift category amount related to the “retail value” of products, time or services donated. As stated previously, those figures would not be IRS-deductible amounts, and are not certified as such. But the public gestures by non-profit organizations regarding the “market worth” of In-Kind gifts are always greatly appreciated by the donors.
There can be little doubt that your In-Kind donors would be quite pleased to see their names listed in a contribution category of that “retail cost” right up there with the givers of cash. This public listing has been practiced for many years, with those contributing cash finding no fault when In-Kind donors are placed in the same category with them. And more importantly, donors of In-Kind gifts frequently express their gratitude for being recognized in such an appropriate and thoughtful manner.
Don’t Be Unkind to In-Kind
To reinforce the idea that it is a well-served practice to recognize In-Kind gifts in the way suggested, and that by not doing so could disappoint or alienate the donors of such gifts, I am reminded of two incidents.
Recognize What it Would Have Cost You “Retail”
Recognition of an In-Kind gift became a serious issue with a non-profit client of mine following the conclusion of a successful capital campaign. The new building was up and operating. Everyone—board, staff and the community—was satisfied and happy. The trouble came as the listing was being finalized for permanent and public recognition of the capital campaign donors on a bronze recognition plaque for the lobby, in preparation for the new building’s dedication event. Names were placed in columns under the specific and respective contribution levels. Those of us who were involved in various leadership roles for the campaign together reviewed, edited, and then approved the final rendering of the listing before it was to go to the plaque manufacturer. Then, two of the organization’s leading board members abruptly demanded the removal of the name of a major In-Kind donor from the $15,000 to $19,999 category, and demanded that the donor’s name be repositioned in the $1,000 to $4,999 category.
The In-Kind donor was a paint manufacturer. The original campaign expense budget for the paint (prepared well before its donation) reflected a best price to be paid in the market in the amount of $15,000 for the gallons required to paint all of the rooms in the new, several story building. The two shortsighted trustees adamantly insisted that, from experience with their own businesses’ manufacturing costs, the true expense to the paint company would only be approximately one-third of the retail price, and that was the gift category in which the paint contribution should be recognized. I went tooth and nail on this, and I finally won over the two truculent board members when they realized that, had not the paint been donated (no matter the cost to the paint manufacturer), the non-profit would have had to raise additional cash in the amount of $15,000 to pay for the paint.
Sometimes, being stubbornly practical and literal can do damage to the relations a non-profit has with generous benefactors. Imagine the officials of the paint company attending the dedication event of the building they supported, only to see their company’s name placed in a category not in keeping with the worth of the paint as they knew it—but greatly diminished in value as seen by the officials of the non-profit organization.
In-Kind vs. “Real Money”
I was going into the last month of a fund-raising consulting contract for a capital campaign with a social service organization. All had gone extremely well over our ten-month partnership. The organization’s volunteer leadership and staff did an outstanding job, the money was raised for the new building, and I felt that the last month of my contract required greatly reduced counsel on my part. Even if no counsel was necessary, the contract required that I be paid. In any event, I told them not pay me for the last month. As I saw it, I “donated” $3,000 to the organization. Naturally, I did not attempt to declare that “value” for a tax deduction. But, when the celebrations were over and the new building was dedicated, I, with some anticipation, looked for my name to be listed in the campaign publication under the “$1,000 to $5,000″ category, or included with their listing of In-Kind gifts. My In-Kind contribution was not acknowledged in any way. I asked the Director of Development about what I thought to be an oversight. The answer was quick and curt — “We appreciate what you did, but it was not “real’ money.” I saved them $3,000 from their capital expense budget, and the money was not “real?”
Never Take In-Kind Gifts For Granted
The final message here is that you must regard all types of “In-Kind” gifts with the care and consideration they deserve. It’s so easy, and so appropriate to acknowledge “real” cash and securities properly. But all too often when it comes to In-Kind gifts, it’s another kettle of fish. It should not be.
These are my views regarding the acknowledgment and recognition of In-Kind gifts. I welcome your comments.
Dear Mr. Poderis,
Thank you for the article. It is very helpful.
I have a question about “In-kind” gift to non-profit origination.
I work for a private school and our parents association run a faculty gift baskets every year. The gifts from a lot of parents to parent association then to all the faculty. The gifts included stuff and cash or gift cards. We never received parents to ask for a “In-Kind” donation receipt. But this year one of parent who ask for it. Do we need to issue a receipt for her or should parent association should do it? Can parent association provide “In-Kind” donation receipt?
Thank you very much and hope it did not spend too much of your time.
Hope everything goes well in your life.
Thanks. Vickie
Vickie,
Tony is away on vacation through March. I’m sure he will have something to say when he gets back. Meanwhile, my thoughts: The in-kind receipt needs to be issued by an organization legally able to accept charitable gifts. That might be your parents association if it is set up as a 501c3 (in the US) organization. If not, the receipt will need to come from your school–once again assuming it is a legally constituted nonprofit. The valuation of in-kind gifts is tricky. In general, they have a value of only the actual expense incurred by the donor in acquiring or providing them. Not their market value. Let’s say an automobile dealer gives you a new car for an auction item. The dealer can only claim the value of the gift to be the cost of the auto to him. Not the market value of the car. In this example, your school should not issue a receipt for the market value. Hope this helps.
Thank you very much!
I don’t think our parents association is set up as a 501c3 (in the US) organization but we are. I think I know how to do it. I will write a tax deduble letter to the parent since she is asking a receipt for her donation. I don’t know why we never make it clear to parents that they can ask for In-kind donation receipt through school when they donated stuff to parent association for this gifts basket campaign for faculty/staff. Thank you. Vickie
Hello Vickie: Dave’s immediate follow-up helped clarify your situation. Simply put, the IRS will only recognize any donation as it is acknowledged by an accredited non-profit.
Of course if cash, you specify the amount. But, as you know, with in-kind contributions, you should only cite what was given. The actual value of the in-kind is totally left up to the donor to reconcile with the IRS.
Non-profits cannot and should not provide official, or even official-looking, valuations of in-kind items or services. Maybe you did read my article on this topic. If so, just follow the suggestions. If not, I invite you to read how you can recognize in-kind donations to the satisfaction of the donors.
Your sample acknowledgement letter says “we likely would have had to expend $____”. What about when a donor buys something for you (a piece of software in one case, decorations in another) that was needed and furnishes the receipt. We know exactly the cost – not an estimate. Can we put that amount in our letter? Can the donor not count this as a charitable deduction?
Mindy: Absolutely, you can thoughtfully mention, in the way I suggested, those amounts paid by donors for the things they bought and paid for and which they subsequently gave to you. The lead off thanks in the letter for the (detailed description) item donated, then sets the stage in a clear, safe, and legal manner to recognize the dollar value to you, and which you would credit publicly.
The software and decorations are still In-Kind donations, however, and you cannot make references to the amounts as being an official valuation by your organization for the reasons I cited in my article above.
If the receipts are going to do anyone any good, they will be only for the donors, who will need to work out any possible tax break with their tax preparers and the IRS.
The only reason I always liked to let the In-Kind donors know “what it would have cost us retail,” but for their generosity, was to show appreciation. Nothing more. And, with the necessary description in the letter of the In-Kind product or service donation preceding the recognition amount, there is no question that an article, product, or service was donated, and that the In-kind gift donation regulations will apply.
Next time, do consider seeking an agreement with a donor where you buy and pay for the article in need, and then the donor sends a check to your organization in to cover that purchase. Her or his cash donation is then fully tax-deductible. And you have the item paid for.
What recommendations do you have for a nonprofit that receives a large volume of small GIK donations? We receive a lot of donations from visitors in the form of a 12 pk of paper towels, a laundry basket, old towels, birdseed, etc. These items by themselves are nominal, but in total, are a sufficient amount of supplies that we did not have to purchase. We don’t always see the donor, and most are not interested in an acknowledgement. Conversely, it would be great for us to show the actual cost of running our programs, by showing the donation revenue and corresponding expense of these items.
Amy: A few comments following down the lines of your note:
Apply, as appropriate, the suggestions from my article to each In-Kind donation which has a “what-it-would-have-cost-retail” amount, and which saved you from paying for it, if that amount fits into any of your regular donation levels, the ones you promote and publicize say, in your Annual Report, or other such listings of donors.
Or, you could have a separate GIK listing of those of value high enough to publicize the names of the donors. Those not wanting their names listed, and those giving very small In-Kind gifts, could be cited at the bottom of the listing as, for example, “And forty-eight other generous donors of In-Kind goods to (organization.”)
Be sure to list publicly the types of items you do want to receive as In-Kind donations. List the items you have received, along with a summary, perhaps, of the total number of such donors for the year to date, and the grand total estimate of what they all gave in terms of the retail cost, plus the important point again regarding how, because of their generosity, you did not need to buy such items, thus the money saved, was more you could spend on fulfilling your mission.
Don’t let the “not interested” statements from your In-Kind donors still keep you from sending a simple thank you. I will wager they mean that no acknowledgment is necessary from what they see as the difference between giving cash and giving goods. You should still send them a thank you. Don’t ask. Do it.
A final suggestion: Use your good judgment to know just how much you should solicit and manage the GIK process. You don’t want potential cash donors to even begin to think that a good deal of your needs are met by In-Kind donations. The effort should not in any way distract from the Annual Fund Campaign’s quest for cash to meet the mission’s needs, and to pay the bills.
Great article! Very informative.
I have a question about donating office space to non for profits. I work for a non for profit and a company wants to donate office space for our use. Although we are registered as a non for profit, we do not have 501 c 3 status, we do however, have a fiscal sponsor. Is it still possible for the company to donate the office space and write it off as a tax exemption?
Thanks,
Aga
Hello Aga: Thank you. I am pleased that the article is useful. The suggestions there will apply in the same way in your situation. The only, and the big, difference, is if your Fiscal Sponsor approves and accepts this particular In-Kind donation. I have no reason to think one way or the other, but it is of course up to them since they carry the non-profit certification.
The donating company must follow the rules of the IRS in how that company declares the value of the donation, and you know that is something you should not officially do, but as I cite in the article, you simply acknowledge in detail the In-Kind donation, and symbolically say thanks for saving you what it would have cost otherwise to pay rent.
But, there is much more to such donations of office space, and that is why the Fiscal Sponsor must pass judgment if they will accept the In-Kind as a “passthrough donation to their non-profit status.
You must think about the building owner’s insurance responsibility—and especially yours—regarding accidents to your staff, your visitors, and damage to your own installed furnishings and other property. Too, security to protect people and property—yours and theirs—many need to be considered. And, because of the way the building is designed and how other tenants operate, must your regular business hours and your special schedule of operation be the same as theirs? You need to know that.
Will heat and electricity be provided, or will you be expected to pay some sort of estimated expense relative to the space you occupy? Will those utilities’ costs be fixed by meter to the area you use, or does the heat, water, electricity, etc., function overall to all tenants? How will that expense be shared? How much will it cost in any event, and can you afford it?
Your Fiscal Sponsor no doubt will have much to say regarding those answers.
Equally important, is that the donated space be located in an area best suited to the convenience and access of those whom you serve, your staff, and your visitors. Will there be parking accommodations and will there be a charge for parking?
I believe that the many explicit conditions, procedures, and the inevitable surprises, good and bad, surrounding donated office space can be best addressed when you have the opportunity to personally meet to talk about the possibility with the people considering the donation and to have an opportunity to personally and thoroughly inspect the facility to ask questions in the company of someone from your Fiscal Sponsor.
Of course, one of the biggest issues to resolve, is to have a clear and binding understanding regarding when you intend to vacate, or when you are required to vacate—with protection in between so that you are not evicted.
This has been very helpful.
Thank you!
if we receive tickets as a donoation and then turn around and give them to a donor to use, how woudl this be lcassified? The donor is requesting a receipt. What we provide adn how woudl this be considered?
Cathy: While not an expert regarding the IRS rules, nonetheless, I am relating the process as I see it from experience with our Orchestra’s patrons’ donations of tickets we have used in the way you described. What you have read in my article applies. Do follow those guidelines.
(1) Ticket Donor: Gives you tickets. You only acknowledge, as I cite in the article, that the tickets, “as you understand it,” have a “market value” of $_______. You give no official-sounding evaluation. It would do no good anyway.
The donor needs to reconcile any possible tax benefit with the donor’s tax preparation action. Who knows? That donor may have not have paid for the tickets in the first place, or may have paid less. It is up to them to declare, or not, whatever they can declare for tax benefit purposes. You are just saying that it is generous of them to give you those (two $50) tickets to benefit your institution.
(2) Turning around, and the giving them to a donor to use, is another matter. If the donor accepts the two tickets as being a premium or benefit for a specific donation they are making, then you must apprise them that their say, $250 donation, has $50 of that money being in the form of “goods” they received for their donation. But, if the tickets are merely given with no such explicit attachment to a donation, the recipient just goes ahead and uses the tickets with no accounting problem.
Countless times, our Orchestra patrons gave us tickets when they could not attend concerts. They declared what they were allowed for tax purposes on their own. We said thanks in the way I describe in the article and in this note.
We gave the tickets to donors and prospects, mostly outright as courtesy and cultivation gestures, with no accounting responsibility at all on the recipients. But, if we offered those tickets as a premium for a donation, as described above, then we needed to tell them net amount we could declare as their true cash contribution—deducting the “market value” of the tickets they received for their donation.
Hi Tony – thanks for an interesting and informative article. I have a couple of related questions. I’m presently tweaking our organization’s Gift Acceptance Policy which makes no mention of Gifts In-Kind (with the exception of real property). Can you suggest some language about gifts of products, time and services that would be appropriate for such a document, written mostly in “legalese”?
Also, is there a provision that should be made for Board giving in accepting In-Kind gifts? One of our officers wants to make a gift of services that basically has no value to our organization, but would make him feel good when measured against more affluent Board members. It would set the bar very low just at the point where the Board as a whole is starting to take fundraising seriously, and we’re starting to get some good lead gifts in. It’s a problem. Thanks!
Marianne: Maybe the last thing you need is any document, especially one in “legalese,” which focuses far more attention to what is a rather simple and innocuous form of receiving donations.
if In-Kind Gifts do not need to be, nor can be, a primary source of donations of products and services to your organization, then I suggest the least you do to highlight them, the better.
Even if your organization is of the type say, of a Ronald McDonald House, where the many living units for families of children ill or injured in local hospitals, would require and seek GIK for obvious needs, the focus on securing such donations is just that; Focused.
They need rolls of paper towels and toilet paper by the hundreds. They identify and ask the most logical supplier for that GIK and the RMcDH saves plenty of money. When I consulted for a RMcDH new building campaign, yes, the many products needed were in a GIK division for the several million dollar campaign. We targeted the purveyors of formica, for example, and did unofficially have a goal for GIK, because of the many prime opportunities. But, the seeking of cash was always in the forefront, even with such a capital campaign. Once up and running, the House put the solicitation of GIK in its proper discreet position, because again, they needed cash to pay the bills.
There should not a general, public, campaign, or too much emphasis placed on securing GIK. The risk being that you will be offered things you do not want or need. It is then a tough thing to do to when it comes to turning down such donations, even when the items are outdated, obsolete and even damaged. (I know this from hard personal experience.)
Other than the RMcDH example, cash is always better.
I suggest you simply adapt material frm my article as your “Policy Paper” if your leadership insists on such written documentation.
And I especially urge that you do not have such a special policy/document for the Board.
You must find a way to tell that Officer, “Thanks for thinking about us, but we aren’t the right place at the right time for that generous gift. We would not be able to get full value out of it.”
Otherwise, you are correct. The cash-giving bar will indeed be set lower, others may follow the example, and your need to raise cash, cash, and more cash, will be harder to meet.
I consulted for a hospital, and initially saw that the Board’s Annual Fund giving was far below what was there as obvious potential for many of the individual Board members. We rated each one for likely potential. The Board President not only should have been the pacesetter/example, but she had the highest rated giving capability. When asked for that cash new Annual Fund donation, she insisted that we credit her donation for the amount of $30,000 annually, since that was the estimate of her donated time of providing PR/Marketing/Communications services from her professional business. (Much of which we actually did not need.) Considering her high position and strong influence, we were forced to do what she wanted, and you can well imagine how ineffective she was when it came to convincing her Board colleagues to give cash, some were to be asked for major donations. The Annual Fund sputtered and came nowhere near what it should have been, all because of the example set by the insistence of accepting and using a GIK which was not appropriate to the situation.
I would be most grateful if you could respond to this question. Our non-profit, which has a $250,000 annual fund accepted a donor’s gift in kind of completely renovating an office in our building. He is a skilled carpenter, and originally he was to give of his time and materials, and we agreed to pay for an electrician and second laborer. In the end, the donor covered all costs and provided a detailed invoice of materials, labor for himself and the other two, totaling $18,000. We formally acknowledged this very generous construction project without stating its value in a letter. What part of this gift in kind can I book to my annual fund? We certainly value this as an $18,000 gift and will report it that way in our Annual Report, but, just as I book other gifts in kind at a value, can I do the same for this one? MANY thanks.
Angela: I suggest you do not book any of the $18,000 office renovation In-Kind gift to your Annual Fund. You really cannot anyway from an accounting point of view.
For one thing, the GIK is not annual, thus any amount booked would not be repeated for the next Annual Fund Campaign. You would, in effect, be inflating the Annual Fund Campaign with a “paper credit,” which amount would be looming for next year to make up. So why unnecessarily increase that operating deficit “gap” for the year following?
In any event, the generous GIK, while saving you plenty of cash were you to need to make the renovation, and pay for the renovation, on your own—nonetheless, the GIK is not cash which can be entered into the Annual Fund directly to reduce accordingly the operating deficit.
If some, or all, of the office renovation cost was in fact entered into the organization’s annual operating budget for one year or more, the result would have been that your Annual Fund Campaign goal would have been set that much higher. That cost, being part of the AF goal, would have been worked to by conducting your AF campaign in the regular ways, seeking new cash and pledges and asking for increased donations—all in the mode and spirit of what an Annual Fund Campaign is: The seeking of a strong and repeatable base of donations you can work to count on year after year. One-time, In-Kind gifts, do not fit in that way.
Publicize that very generous GIK in your Annual Report in a separate section devoted to such donations. If the office renovation was well beyond other such donations in money value and scope-of-project, it could be of inspiration to others and a worthy gesture to the donor for you to print a photo of the finished renovation in the Annual Report and give appropriate credit there.
How your generous benefactor reports what he gave to his tax preparer and the IRS, is solely and strictly up to him—as I report in my article above. True, you do not provide the $18,000 GIK amount as an official and certified donation, but from the example in my article, you certainly can say with pride and appreciation, how much that generous donation saved your organization from paying for a much-needed improvement without spending funds which must be spent to directly carry out your Mission.
Many, many thanks for your response and assistance, this last day of the fiscal year! I really appreciate your insight.
A member of our 501(c)3 non-profit organization personally paid the cost of printing a brochure ($150). Instead of being reimbursed, he wants a receipt for the $150 as though it was a cash donation.
By the time I finished reading the IRS 526 instructions as well as your information I had thoroughly confused myself as to whether to issue a tax deduction statement of a very nice thank you.
Marcia
Marcia: If the individual “personally paid” the cost of the brochure with his payment directly to the supplier of the brochure, then of course, he did not give a $150 cash donation directly to your non-profit organization. He “saved” your organization from spending $150. So, no such $150 donation receipt/acknowledgment should be given. It would be untruthful and illegal.
You should follow what I recommend in the article, and treat his direct and personal payment of the invoice to the supplier on your organization’s behalf as a gift in kind. I make it clear exactly what you can communicate to him, regarding the savings to you by his payment. How he handles the transaction with his tax-preparer, is solely up to them.
You can reimburse him, if that is what he wants in the end, and if you choose to do so. If that is his idea as an alternative, for somehow wanting to get his money back in some way, or looking to have the payment recognized as a cash donation for tax purposes, then I wonder what good his payment to the vendor was in the first place—unless he got a good discount deal for you.
The only other way it would have worked, was for your organization itself to have paid the invoice. As agreed in advance or later, in turn, the donor sends a check in that invoiced amount, payable to your organization as a contribution, which is then tax-deductible.
That way, the expense is underwritten, a method quite common with donors and non-profits. After all, that process is a prime feature of capital campaigns—where many donors, via the “named gifts” feature of such campaigns, make tax-deductible donations directly to the non-profit for specific purposes, which in turn can then be applied to “pay” countless invoices for building materials, furnishings, landscaping, etc. Any other way, such as a donor paying a vendor directly for something, and turning the item over to your organization, is a gift in kind.
Follow exactly what is suggested in my article.
A company would like to donate a photo booth for the duration of an event and the photos taken during the event. What portion can be considered gift-in-kind? Any suggestions on acknowledgement wording? Thank you.
Marie: If the company is in the business using such booths, and taking pictures, developing them, etc., the company, after the event, should give you some idea of what such a commercial enterprise/installation cost them. Your acknowledgment should at first, cite the physical items, such as the booth, number of photos taken and developed, any of their people providing service, etc. Ask them what was the cost to them in total. Your letter should only say something along the line of, “We understand that your generous in-kind donation would have cost us approximately $$$ were we to have such an installation.
Accordingly, do follow my suggestions above for giving them public, “paper” credit. By paper credit, I mean that you provide nothing coming from your organization what may be taken as a liter, official, valuation. From reading my article, you know that is not the proper thing to do.
This all applies as well if the company has any of its employees working the booth photo operation. You would not, as well, give anything official-sounding regarding the cost of their time.
Really nothing much different from what the above article describes for accepting and recognizing in-kind donations.
Nice donation, and I hope the photos help you to make a good amount of money for your organization.
Be sure to give them plenty of all the possible visible credit before, during, and after the event.
Tony, I think I’m finally getting my arms around this issue but want to ask a few more questions. Every year we hold a massive fund raiser and during the event we auction off a hand full of high ticket verbal auction items. Our Board of Directors is split on how we “book” the income. Half of them think that the buyer of the item should be credited with the net value, in other words, what they paid for it less the value. They also think that the donors should get credit for the gift in kind even though it was not cash. This method would mean that our buyers are only getting acknowledgement for a small portion of the check they wrote to buy the item. (A trip to Greece might retail for $17,000, the buyer pays $30,000. We send a thank you note to the donor and book $17,000 as income and then send a thank you to the buyer and book the additional $13,000 as income).
The other half of our Board thinks we should give full credit, or gross amount, to the buyer of the auction item. The donor gets a letter acknowledging his/her in kind donation worth $________.
Another question, does a non-profit have to show in kind values on their 990′s?
In both cases what either the donor or buyer report to their Tax Accountant is their business and not ours, am I right?
Susan: Important two points, I believe for you make legally happy the donors of the auction items, and the purchasers/contributors of those auction items
:
1. that you work with your accountant, keep reading the IRS Publication 526, ask other benefit auction organizations what they do, and seek estimates of values from the auction item donors themselves for, not official evaluations, but for estimates of their “Fair Market Value.” What it would cost “retail.”
(2) That you especially tell that “other half of the Board,” the group which wants to give full credit to—the gross amount spent—the buyer of the auction item, that such an transaction is illegal. Any “contributor” receiving any goods and services, which they are certainly obtaining, must deduct the fair market value of what the receive from the amount they tendered for the auction item. I can see how some can be confused regarding coming up with what the IRS will later accept as the FMV. But it is beyond reason how half of your Board can expect to claim a full tax deduction of, for example, $10,000 made to obtain an auction item of airfare and hotel accommodations. These are obvious hard and fast items with real “retail” value they are receiving.
When you offer tickets for “sale” to your fund-raising event (dinner, auction, etc.), should the cost per patron be, say, $250, you know that you must let that patron know that the amount allowed for tax-deduction purposes, is the amount less the $250 for the “fair market price” of what they receive/will receive when they attend, i. e., dinner, refreshments, valet parking, table favors, etc., as best you can determine. Then, it is up to the potential patron to purchase their ticket and apply those numbers when tax-preparation times comes along. There are times when such a person will simply send the money, while checking the usual box on the invitation that they cannot attend, but “here is my contribution.” Receiving no benefits, that is a full tax-deduction amount.
The same goes when you get into “big ticket items” for an auction and folks receive those big ticket items for their purchase/donation. Here is where your charity is obligated to tell the purchaser of the auction item the fair market value of the item so that the purchaser can claim a charitable contribution deduction if the “price” is more than the value. In that case, the purchaser of the auction item can claim a deduction of the difference. If the price is less than the fair market value, of course, the purchaser cannot claim a deduction.
Since the donor of the item for the auction is probably also claiming a deduction for the value of the item, it makes sense to talk with that donor and try to agree on a fair market value that you can suggest to the auction item buyer. Just as you do with Patron’s benefits as cited above, your charity has an obligation to seek an estimate to tell the purchaser. (For the Patron deal, you would ask the caterer for an estimate of the Fair Market Value of the dinner, average refreshment cost, and the parking company for the free valet service market value received. No different for the auction items.)
Many popular auction items are service items, like a week at a vacation condo, for which the donor gets no deduction, and the purchaser is able to claim a contribution deduction only if, and to the extent that, the price is more than the estimated value of the service.
The filing requirements for obtaining substantiation and for claiming charitable deductions for gifts of property are imposed on the donor, not the charity. A charity which wants to receive significant gifts, however, will work with its donors to assure that they are able to comply. If the proper acknowledgments are not obtained in time, the entire deduction can be lost.
Whatever the item donors and the item purchasers in the end actually claim to the IRS, is their business.
Can expense incurred to travel to/from, and other expenses incurred while attending, a nonprofit organization event qualify as in-kind? We currently have board members and other organization members who would like to receive an in-kind donation acknowledgement for their travel expenses to and from a fundraising event. From reading the comments and the article the answer is “no.” So, then my question is there any literature out there that spells this out in clear, nontechnical language?
The other question I have is related to expenses incurred my members/board member on behalf of our nonprofit/event-related. How do you acknowledge money spend on printing, toner, mailing, printer paper, etc.,by a member/board member, who wishes not be reimbursed but would rather receive an in-kind acknowledgement for those expenses?
Katie: Following are both my replies:
(1) The literature is readily available in the form of a publication from the IRS website. The section dealing with your question makes clear what your members can and cannot do. It could perhaps be to your advantage to download from the IRS’s website its Publication 526. It explains which deductions one can, and cannot make. Plus the link following works to access the Table of Contents of that IRS Publication.
http://www.irs.gov/publications/p526/index.html
Following is some of the instruction you and your members should read:
“Contributions you cannot deduct”
“Out-of-Pocket Expenses in Giving Services”
– They cannot deduct the “value” of their services, but they may be able to deduct some amounts they pay in giving services to your organization. (That can be a real stretch for them to prove to their tax preparer and the IRS, when the “expenses” are connected to their attendance at an entertainment and pleasure event.)
So, the amounts must be, among other things you can see in the IRS Publication 526:
– Directly connected to the services;
– Expenses they had only because of the services they gave;
– Not personal, or living expenses.
You must not be put in the position to declare any accredited-by-your-organization values of this kind. It is up to those individuals. You can certainly thank them for paying the cost of the Patron ticket to the event, less market value of benefits they received, i. e., dinner, but in no way, in my opinion, can they declare travel and other expenses just for showing up.
(2) Just look above at my article to the section, “Sample Acknowledgment for an In-Kind Gift.”
Simply get the board member’s best estimate of the cost of printing, toner, printing paper, etc., and write the letter as my example shows. You do not declare that total estimated cost as an official value for the reasons I cite in the article, but you can state the amount being what it saved your organization from spending. Use the sample letter, and fill in the blanks accordingly. It is up to the In-Kind donor to work with her or his tax preparer in accordance to IRS rules for any possible deduction—something you should not attempt to do.
Tony,
Wonderful article.
My organization recently held an event at a local hotel. Several folks who RSVPed that they’d be attending were eventual no-shows, costing the organization close to a thousand dollars in wasted funds. The owner of the hotel, who also happens to be a donor to the organization, essentially forgave half that amount, but on the invoice noted the amount (~$500) as a “donation.” How do we acknowledge thd donor adequately without crediting them for the full amount of the gift?
Many thanks.
Lee: Thank you.
(1) Of those several folks who said they would attend, but did not, can you appeal to them, one by one personally, to make up what they cost you? You may even find that one or two, close and sympathetic, will themselves make up what some others say they will not pay.
(2) You will, next time, be sure that any such reservations for which you are liable, are paid in advance.
(3) With the invoice, you apparently paid half from your organization’s funds. The $500 balance was “forgiven,” thus is a generous In-Kind donation. You simply acknowledge it in that way; “Thanks to your thoughtful generosity, you only require that we pay $500 of the $1,000 event charge, thus allowing our organization the use of those funds to continue to carry out our important mission to the community.” (You can use the sample letter in the above article, and simply fill in the blanks.)
(4) It is up to the owner of the hotel regarding how much, in fact, he can declare to the IRS, should he wish to do so. You can only state what he saved you from needing to pay.
(5) And do follow my suggestions in the article regarding how you will recognize his support publicly.
Thanks Tony for the advise on in-kind donations(Aug 6th post).
I am confused about gifts in kind still. We have an auction and I think what you are saying is when we get items donated to auction we should account for them at the stated donor value and then adjust for what the item sold at as the true donation after the event. My bookkeeper thinks that we also have top account for these items as an expense – since she said we would have had to buy them if we didn’t get them donated. I disagree and think they are simply a donation of value and there is not corresponding expense – which would in effect wipe out the value and inflate our expenses for which we had none.
Sylvia: Read again what I wrote in the article as having two very different positions when it comes to a recipient non-profit accepting and recognizing an In-Kind Gift (1) The donor of the GIK is the one obligated by the rules of the IRS to come up with the donor’s own proven valuation of what was donated when making such claims on their tax reports. (2) The recipient non-profit should only acknowledge the article, product, or service with a narrative description, but as well, as I suggest, in order to provide thoughtful and appreciated acknowledgment, the non-profit—only in a symbolic way—can say “thanks for saving what it would have cost us retail.” That is made clear in the article. (We will talk about the difference with auction items below.)
We risk possible misunderstanding if we proceed in any other way. For example, were you to have the need to paint the facility, and you budgeted for 50 gallons of paint at the approximate paint store cost of $15 per gallon in your Fiscal Year expense budget, but the paint company donated the 50 gallons of paint, you would have no way of knowing the actual cost to the paint company which only they can declare. Maybe it only cost them $3 per-gallon to make the paint. Or maybe the paint, while still good, was past the desired shelf life, and the paint company wrote off the the expense as discarded merchandise. You still, however, just to be thoughtful, and to be true, say thanks for what you would have had to pay otherwise. You must work to see the divide between the responsibility of the GIK donor on his or her own to accounting for the donation, and your purely good donor relations gesture in terms of the good it did for you. You can see how you dare not give an official declaration from your organization that the GIK donation of paint they are free to declare is the $15 per-gallon for 50 gallons, when you have no idea what they can rightfully declare in fact.
Now, to be more specific to the variations you cited in your Comments above: You wrote, “…and I think what you are saying is when we get items donated to auction we should account for them at the stated donor value and then adjust for what the item sold at as the true donation after the event.” Yes, to the former. No, to the latter. You go by the word of the donor, but only in the case of auction items you would not have otherwise purchased. You simply say that you “understand the value of the donated (item) is approximately ($), which will allow you to seek auction bids to benefit your organization’s special event. If the successful final bid is higher, then you simply state what was bid, and say thanks for making it possible. If the successful bid was lower, depending upon how low, it could be embarrassing to tell them what that poor bid number was compared to what was thought to be the original value. That is why I think it best for sure to give all acknowledgments in advance of the event and the bidding in the way I describe, and avoid doing so after the event which could cause embarrassment should a bid for what was a $1,000 item in the mind of the donor, bring a winning bid of only $500. Even if you establish a minimum bid for each auction item, such an uncomfortable situation may still come about. It is best to give all GIK thanks in advance for that good reason in the way I describe above. Even so, for any public recognition, and for thanks to donor, you only go with what was deemed to be the value in the first place, and never what was ultimately bid, whether higher, or lower.
Your bookkeeper in in error. The only time such accounting would be in effect is in cases such as I described above, when painting the facility was needed and factored into the organization’s expense budget. Never for random, donated, auction items, or for that matter, any GIKs which were not given to directly pay for budgeted expenses. The bookkeeper would understand that when, for example, you had a furrier donate a fur coat for your auction. Would your organization have made such a purchase in the first place? Apply that reasoning for all donated GIK auction items.
Our middle school is having a yard sale.
Mostly, in the past individuals who have donated articles for the sale have not asked for a receipt for donated articles to be used for tax purposes. The organizers have asked whether it is advisable to have a form on hand for those who may ask for one.
There seem to be numerous models, including forms that allow for a representative of the organization (in this case the PTSO) to sign as a Receiver of Goods, as well as a place for the items to be identified or listed. One of the models is the Salvation Army receipt.
My understanding is that anything under $500 could be accommodated with this kind of receipt. It’s highly unlikely that anything over $5,000 will be donated for the yard sale.
Thanks for your thoughts.
Adria: Yes, have handy a simple receipt book, or copies you may make of a simple form. If the latter is printed, indicate your non-profit status. If the former is simply a receipt book you can buy at an office supply store, write in the name of your charity, rubber stamp it, or write it by hand.
In all cases, you need only to identify the items by quantity and by name–no mention is to be made whatever of “value.” That declaration is up to the donors of the items. You can suggest, if you choose, that donors of some of the more “expensive” items should take their own photos of the items should they wish to later provide even more proof of the donation should they choose to so itemize.
If you want to go farther in your assistance to donors regarding their later declarations when filling out their tax forms for the year, get from the Salvation Army, Goodwill, etc., their general listings of the suggested values of most household items.
Having copies available for your donors, as strictly a guide in general, may be a nice touch—but again, such guides are just that; they are not your organization’s official declarations of value.
Any donor later wishing to itemize donations to your yard sale, must themselves provide proof and documentation of the so-called “Fair Market Value” of the items. You simply, and only, say what they gave in terms regarding description of the items, and in what quantity. You should not attempt to state the condition the items are in. Have someone representing the organizations sign the receipt, and indicate the date.
More can be found in the following IRS Publication 526
– Contribution of Property
http://www.irs.gov/publications/p526/ar02.html#en_US_2010_publink1000229704
Best of all good luck with the yard sale.
I am an accountant with a 501(3)(c) community college foundation. We acknowledge In-Kind donations with a thank you stating Thank you for you donation of (blank)which you valued at $xx and go on to state how that will aid the college. We receive everything from gift cards to give or auction at campus events to cars and expensive equipment used in labs. Basically we pass thru the items to the college. We account for them with a separate account for In-Kind donations and expense them in a separate account for In-Kind expense. This always nets to zero as we use the donors value to book it and we can compare totals on our financial statements year to year. Do you have any suggestions on these practices?
Beth: Apart from the accounting standards you follow as a professional in that field—in concert with what your outside annual audit CPA rules—I can only give counsel to you as I would practice myself. I feel certain we will both be within the guidelines, but I will give my opinion regarding the variables in how you account for those In-Kind donations. With the IRS rules clear, that any declaration of GIK value for tax benefit, is to be the responsibility of the donor of the GIK. In my article above, I make equally clear that the receiver organization can provide “paper credit” of some sort, as a good donor relations gesture.
I would not indicate in the acknowledgment the value of the GIK as it was stated by the donor. It may inadvertently give tacit certification of that value to those not well versed in the IRS rules. From the example in my article, for the times a GIK does actually save an organization a budgeted expense, then we express that in thank you letter, as saving us from spending that money.
If the item was not of a budget line-item relief, then I would only stick to a detailed description of the GIK, and as best you can, state how the item or service will be of benefit to the College. That is not always easy to do. (For a radio fund-raising “Marathon” to benefit our Orchestra, we solicited premiums from merchants and others to offer for certain donation levels. During this activity, we found on our building’s loading dock, a pallet of books, not solicited, but books from a well-known and influential author in our city, whose book was no longer selling and he needed to unload what he had to get the best he could from the IRS as he would declare his “gift.” All we could do was to say “thanks” for the 400 books which were of absolutely no use to us. The books did not save us money. They did not make money. No matter his $25 per-book retail value, we cited no amount in any way. This does happen.
How you handle such GIKs internally, to accounting standards, and to be OK’d by your outside Auditor, probably does simply “wash” with the way you stated to being “net zero.”
Actually, because of the vagaries and the problems of coming to grips with true values of GIKs, we did not enter any GIKs into our accounting system, except for those which actually did relieve a line-item, budgeted expense, such as the printer who donated our Annual Report.
A restaurant owner gives 125 $20 discount coupons for his restaurant to our Women’s Club (501(c)3 as an expression of thanks for those putting on a fund-raiser. He values this as a
gift to us of $2500 and wants recognition for having given at this level to the club. Very
few of the coupons are ever used and some members (415 members) feel this does not qualify as an In-Kind gift. One member is insisting that the owner should be recognized in print at a Level indicating the gift is for $2500 and therefore would be qualified to be honored at our Sponsor Party held annually.
One member says we can acknowledge that gift at half the value the giver lists. Your
article indicates that cannot be done.
There are so many differences of opinion that we are at a loss how to handle this.
Your input will be so helpful. Your article is great!
Eliza: I suggest that you use my article’s suggestions exactly as they are stated. From the article, though, I will summarize my opinion relative to the points you cited in your Comment posted above.
(1) Give $2,500 recognition in your print and other ways to the honor of such an In-Kind donation. Since a diner would get a $20 discount to her or his bill, then that is the “value” provided. But you should not cite such a value as an official valuation he can use with the IRS. He needs to do that himself. Naturally, a $20 reduction from a dinner bill, will be an amount in fact less than the true cost of the food. But, we stay away from such things. That’s why the charity never gives “official” valuations, but does give public credit, and recognition for what it would have cost “retail.”
(2) It matters not if any coupons are used, regarding valuations and recognition. If this is a one-time deal, just go on and give him recognition and credit, and forget it. If he wants to do it again, and the coupons are not worth your while or the effort, then you should say, “thanks, but no thanks, not this year.”
(3) The statement of your first member is exactly correct—it fits with what I suggest in my article. The gesture costs you nothing, and you gain good will.
(4) The second member is wrong. You do not “acknowledge” any given dollar amount, if by acknowledge, this would be an official valuation, one which your organization cannot do.
You simply cite the value of the free dining made possible by the face value of the coupons.
And, recognizing “half” the value, makes no sense. The coupon saves a diner $20. It’s $20 you recognize in the way I suggest. Coming up with another, arbitrary, number even for recognition at your event is wrong. (In truth, the $20 saving to the diner, may be but only a few dollars of actual expense to the owner. We don’t know how much it actually cost him of the $20 discount—and we don’t care. That is why we stay away from such faulty and useless estimates.
I hope this does it for you.
I am a Genealogist and Historical Researcher. I have been working on a project with my local SCV in an effort to save a historic Battlefield. I had only recently started my business when I was asked to become a member of the Board on this Project as a Researcher. I was charging $25 a hour but because this project as well as Other recent accomplishments I feel that I am now able to increase my charge to $35 an hour. If I am on the board as a Non paid member will that be considered as a GIK?
Crystal: As I understand it, the contribution of your services is not eligible for a tax-deduction. However, the organization should recognize your GIK in the way I describe in the article. It certainly is a GIK. The organization should not issue an official declaration of value of your donated GIK. It will do no good. On the other hand, look into the IRS Publication 526 for any possible tax break you can obtain for certain expenses you incurred while volunteering your services.
IRS Publication 526 Table of Contents
http://www.irs.gov/publications/p526/index.html
Go to “Contributions You Cannot Deduct” and note the exclusion of “The value of your time or services.”
And I am sure you will agree that now being a board member, you will stay an unpaid board member. Otherwise, that would be an ethical and possible legal issue.
Nice going to do your good work in saving an historic battlefield. My son and I have been financial supporters of such efforts to save and restore a number of Civil War battlefields. We did so again, including with a September visit to Gettysburg.
Is it ever okay to recognize an GIK when a vendor deeply discounts equipment purchased?
Tony,
Thank you for such valuable information. You saved me and thousands of viewers. My parents have a non-profit organization and have struggled with how to properly acknowledge donations of good and donations of time. Your article and sample acknowledgment letters make crystal clear how to handle past and present donations. You save my parents and me a consultant fee of $5,000.00. Secondly, you have saved all of those who have viewed this article $5,000.00. Thank you. I wish access to the valuable information you provided had of been more readily available years earlier. However, moving forward, we will benefit from the valuable information you provided.
I appreciate you.
Thank you,
Erica C.
For Sheree Moore:
Sheree: I think it is OK to recognize most everything and anything someone gives to us in generous good faith. But, there are limits and variations.
You cannot go wrong to say “thank you” for something given. But each instance is treated in different ways by different organizations. Maybe the “deep discount” is not so deep after all, or it is very deep, depending if you were going to purchase the item in the first place, and at an amount higher than what the vendor charged.
You can recognize such a savings in the ways best for you.
The deep discount is not in the form of an actual In-Kind donation, since you did (or will) pay some amount of money—but if the discount is truly one of meaningful magnitude and value, not to mention if doing so cements good relations with the vendor—then you do find a tasteful way to recognize the savings.
Since, as an example using a computer deep discounted, the computer was not a GIK because you paid some money for it, you simply can declare that “because of the generosity of ABC Electronics, our organization saved $1,500 for the purchase of a much-needed computer for our office.” The degree of public recognition for this savings is up to you regarding it being practical, setting a precedent, how other vendors giving you price breaks will react, etc.
All of this has nothing to do, of course, with what the vendor does, or attempts to do, regarding any IRS tax deduction for the vendor. That is nothing you should declare. It is up strictly to the vendor.
Thanks for your great article. Our small 501(c) 3 organization recently held an auction. In preparing thank you notes for in kind donations how specific should be in describing the item? For example a local jewlery store donated a “silver” bracelet. Do we need to be careful with that language? Or do we just says bracelet. I appreciate all the clarification regarding not acknowledging the value of the item in the thank you nor the winning bid amount.
Joani: Thanks.
I suggest that you describe exactly as you were given.
Of course, when what the donor gives is far enough removed from what is what was given, you point that out to the donor.
If the jeweler indicated “silver,” then you simply repeat it.
It is up to the jeweler to prove the silver content and worth with the IRS, should the jeweler choose to make a claim for a tax-deduction.
All you are doing is describing what you received, as you understand it, but again, no “official” declaration of value should be given.
We are a Skateboarding Non profit org. and we are constantly receiving skateboard equipment as donations. Recently we received lots of equipment for our last fundraiser – Sept.24th I will give you an example of this company which donated 14 fingerboards, 1 skateboard deck, 12 hats and 16 t-shirts. How should I write this in-kind donation letter to this company? Also we received food from another company. This company provided tacos all day long at our event , I’m a little confused on how to provide the food company a receipt! Thanks!
Vinicius: In the first example, when you have an exact count of specific items, you simply state that inventory with a brief description of the items in your acknowledgment to the donor—just as you did above in your Comment here.
What, and how many. However, when you receive a quantity of something which is not possible to count, even if the donor gives you an exact count, you should say only, “thanks for the _____, which we understand totaled ______.
That way, should there ever be an over stating of what was donated, you did your best without declaring something you could not know—such as how may tacos were, in fact, eaten during the day.
If the GIK donor, or donors, along with their letters of transmittal, indicate their donated cost of the items, you do not include those costs in any way which can be construed as being an official value declaration for tax-deduction purposes. That is their responsibility to the IRS, however they go.
But, if the items were things you would have bought otherwise, just use the idea promoted above in my article which thanks them for “saving us $___, which we would have had to spend otherwise.”
If that is not the case, then, along with the description and quantity actually received, just state how those items allowed your organization to produce a successful event, and if it made net profit, tell them it was made possible in good measure by their donated items. If no net profit, letting them know the event was a great success anyway, thanks to their thoughtful generosity, is all you need to say.
Do the same for the donated tacos. If the company has any rough idea of just how many tacos they donated, then just say thanks for making the event such a pleasure to
all attending (or performing) “with your generous donation of tacos, which we understand totaled approximately ______.
If you have an idea of the approximate cost of the tacos, and any other items, remember, you only want to know that cost so you can recognize the donations’ value for any public recognition–only–not an offical-sounding tax-deduction declaration.
P.S. When our organization conducted a running Marathon, a large supermarket chain donated “about” 1,000 bananas. They told us there were approximately 1,000 delivered. There could have been 750, or even 1,500.
We were not about to count them. So, with our sincere thanks for what they provided to refresh our runners, we simply said, “…. which we understand totaled approximately 1,000 bananas.”
Thanks for the great dialog here.
I have a question as well: Someone donated a library of books to our organization. They are items that we might be able to sell to bring in some donations, but are not something that we would normally sell or handle. The donor requested a donation letter for her taxes and wanted a specific amount listed. I believe we cannot offer the letter with a specific value amount. Any thoughts of how to best handle this?
Thanks,
We recently had a family donate a piano to the school, and provided us with a copy of a recent appraisal. Do I make reference to the appraised value of the piano in my acknowledgement letter? If so, do you recommend any language regarding this?
Thank you,
Amy
Thanks for the great info. The 501-c-3 non-profit I work for is struggling how to best acknowledge donors in our annual report that give in lots of different ways in the course of a fiscal year. Let's says we have someone who made a $500 cash donation, bought an auction item and can count $150 of that donation, and made an inkind contribution with a market value of $200. Can we put her in the annual report under the $850 gift range? I was thinking we could place an asterix for in-kind gifts and mention they are included based on market value. Any advice you have would be so helpful.