Valuing and Accounting for In-kind Gifts

With the end of the year rapidly approaching and the holiday season close at hand, you may be thinking about how to get rid of clothes you haven’t worn in several years or that extra piece of furniture you no longer need. Your first thought is probably to give it to a charitable organization.

Have you ever wondered how a nonprofit organization accounts for noncash assets or in-kind gifts? Or maybe you are the accountant for a charity; trying to be sure you have properly accounted for and reported the in-kind gifts your organization received.

Nonprofit organizations receive varied donations from the public, including donations of cash and noncash assets. The accounting recognition and measurement requirements related to noncash contributions are generally the same as those for cash contributions. That is, they are measured at fair value and recognized as contributions when received by the nonprofit organization. There are however, accounting issues specific to certain types of noncash contributions including in-kind gifts. I will try to answer some questions about defining, recognizing, tracking, and finding help for valuing in-kind gifts.

What are in-kind gifts?

Donations such as thrift-store inventory, contributed advertising; and marketing media; donated items sold for fund-raising purposes; gifts of long-lived assets; and vehicles received in connection with vehicle donation programs are examples of in-kind gifts. In-kind gifts include contributions of tangible and intangible personal property. Tangible in-kind gifts include contributions of items such as clothing, furniture, equipment, inventory, pharmaceuticals, and supplies. Intangible in-kind gifts include contributions of items such as advertising, other services that aren’t considered personal services, patents, royalties, and copyrights.

When is an in-kind gift NOT an in-kind gift?

Even if the organization has decided to accept gifts-in kind, it may not be the recipient of a contribution. Sometimes, donated materials or supplies are passed from one organization to another at the request of the donor. If a donor doesn’t give the nonprofit organization the discretion to choose who will get the donated items, the nonprofit organization serves only as an agent, and the donated materials aren’t reported as contributions revenue when received. Likewise, when the nonprofit organization distributes the donated materials or supplies to the ultimate beneficiary, the transfer isn’t reported as a contribution made.

Do in-kind gifts have to be tracked?

Although it can be challenging to track and value in-kind gifts, the difficulty in doing so isn’t an acceptable reason for not recognizing them. FASB ASC 958-605-30-11 states that in-kind gifts that can be used or sold should be measured at fair value. Thus, it isn’t appropriate to state in the notes to the financial statements that the value of noncash contributions isn’t reflected in the financial statements because it is impracticable (or difficult) to estimate the value. It also isn’t appropriate to state that in-kind gifts aren’t recognized because there is no objective means of valuing them. A good faith attempt to determine value results in better information in financial statements about an organization’s level of contributions and programs than no value at all.

Where can I find help valuing in-kind gifts?

Locating resources to assist organizations in valuing in-kind gifts, other than property, isn’t always easy. Authoritative literature provides only broad, general guidance, and many organizations struggle to find useful guidelines to help value donated assets. Four resources providing guidance on valuing various types of in-kind-gifts are as follows:

·       Online prices.

·       Salvation Army’s Donation Valuation Guide.

·       TurboTax® Its Deductible® Software or Book Edition

·       IRS Publication 561, Determining the Value of Donated Property.

View related Checkpoint Learning online CPE courses and webinars

Rules for Political Participation by Churches and Other Nonprofits

With the national and local elections process in full swing, political contributions and participation in the political process are regular topics on the evening news. The dramatic increase in the amount of money being donated to and spent by the national campaigns is staggering.

During the last major election, I wanted to be part of that process, so I donated ten dollars to one of the major parties. They took my ten dollars, added fifteen dollars to it from some other donor, and then spent the combined twenty-five dollars trying to get me to donate ten more dollars. That is the worst business model I have ever seen, but I guess it works on some folks.

My contribution was not tax deductible; however, it was legal. Donations to a political organization by churches and other nonprofit organizations (NPOs), on the other hand, are strictly prohibited by Internal Revenue Code Section 501 (c) 3.

The Code also prohibits churches and other NPOs from directly or indirectly participating in, or intervening in, any political campaign on behalf of (or in opposition to) any candidate for elective public office. Any church or other nonprofit organization violating this prohibition risks losing its tax-exempt status. The Internal Revenue Service does, however, provide resources to help these organizations understand the rules.

Actions Churches and Other NPOs May NOT Take

1. Endorse political candidates.
 2. Contribute to political candidates or political action committees.

3. Participate in fund-raising projects for political candidates.

4. Distribute a candidate’s political statements.

As part of its examination program, the IRS monitors whether organizations are complying with the prohibition. When the agency finds or is made aware of instances of noncompliance it may issue a warning letter or it may revoke the entity’s tax exempt status.

While the IRS has issued hundreds of warning letters intended to stop advocacy for political candidates, it has only revoked a church’s tax exempt status twice since the tax law was amended in 1954.

Certain activities or expenditures may not be prohibited depending on the facts and circumstances.

Actions Churches and Other NPOs May Take
1. Conduct non-partisan voter registration/education drives.

2. Host forums where all candidates are invited and treated impartially.

3. Rent a church or other NPO membership list (at market value) to a candidate.

4. Make voter’s guides available to members so long as the guides do not reflect a partiality which could be misinterpreted as an endorsement of a particular party or candidate.

Trivia
1. The first recorded tax exemption for churches occurred circa 312, when Constantine, Emperor of Rome granted the Christian church exemption from all taxation following his conversion to Christianity.

2. In 2010 the State of Oklahoma awarded tax-exempt status to a Satanist group called The Church of the IV Majesties.

When it comes to politics, churches and other nonprofit organizations have to walk a very fine line. While the prohibition for organizations does not apply to members, a member must be careful to inform an audience that he or she is speaking as a citizen and not on behalf of the organization.