Accepting Noncash Donations

When you imagine a donor contributing to a nonprofit organization, you probably imagine someone donating cash via check or credit card. And while that’s often the case, some donors choose a different path. 

Noncash donations–whether they’re stocks, collectibles, or even vehicles–provide valuable support to nonprofits beyond traditional funding sources. In some cases, these contributions can continue to deliver value (monetary or otherwise) over an extended period. 

However, accepting and properly accounting for noncash donations comes with its own set of challenges and requirements. Nonprofits must satisfy valuation and reporting obligations to stay compliant and maximize the impact of these gifts. 

In this article, we’ll explore some of the most common noncash donations a nonprofit might receive, explain the best practices for processing these contributions, and outline the key mistakes organizations must avoid.

Common Types of Noncash Donations

While cash donations are often the most straightforward to account for, nonprofits frequently receive a wide range of noncash contributions. Some of the most common types of noncash donation include:

Publicly Traded Securities and Crypto Assets

Donations of stocks, bonds, and other publicly traded securities are among the most common noncash gifts. Today, many nonprofits even accept donations of crypto assets. This type of donation has tax benefits for the donor, which often enables them to make larger donations. By donating a stock they’ve held for at least a year and that has appreciated in value, the donor can avoid paying capital gains tax and then itemize the fair market value as a tax deduction. 

In most cases, a nonprofit that receives securities as a donation will liquidate it for cash. In some instances, nonprofits may continue to hold the security in their endowment; in other instances, the organization will sell the donated stock if it does not align with the organization’s investment strategy. 

There are additional tax filing requirements for donations of cryptocurrency assets. If the value of the donated cryptocurrency is over $5,000, the nonprofit is typically required to obtain a qualified appraisal of the asset and have the donor sign Form 8283. Additionally, once an organization liquidates cryptocurrency that is has held for less than three years, it generally has 125 days to file IRS Form 8282, although some exceptions do apply. 

Learn More: Cryptocurrency as Donations to Your Nonprofit: Accounting Advice for Reporting + More

Books, Artwork, and Other Collectibles

Some donors may contribute collectible items such as books and fine art. If the organization is a university or a museum, they can often use these donations to support educational programs. In other cases, the gifts can be sold to generate funds – although there are accounting standards for collectibles that govern what these funds can be spent on.  

To accept a gift like this, the organization typically needs a way to safely store and maintain the item until it is sold. Nonprofits must also maintain an inventory of their collectibles that details their condition and the ongoing efforts to conserve them. 

These donations are also subject to valuation procedures, meaning that the value of the gift must be assessed by a qualified appraiser before it can be disclosed. Depending on the value of the gift, the donor may request the nonprofit sign Form 8283 as substantiation required for the donor’s income tax return.

Vehicles

Some donors contribute vehicles, including cars, boats, and planes. While these donations can be valuable, like artwork, they may require additional resources and processes for storage, maintenance, and eventual sale, making them inconvenient for some organizations.

If the organization sells the donated vehicle, it must notify the donor of the sale price within 30 days. If it chooses to keep and use it, it must still provide a formal written acknowledgment of the donation. Because of the complexity of this process, many nonprofit organizations choose to work with a third-party who is responsible for running this program. 

Processing Noncash Donations

To accept noncash donations, a nonprofit must take critical steps to ensure compliance with IRS regulations and best practices. Here’s an overview:

Gift Acceptance Policies

Gift acceptance policies are a governance tool that helps organizations manage risk and ensure consistent treatment of donors. These policies outline what types of gifts can be accepted. They guide staff members in evaluating and processing gifts while remaining compliant with IRS guidelines and clarify for donors what types of gifts are viable.

When creating a gift acceptance policy, consider factors such as the organization’s mission, resources, and ability to properly handle and dispose of donated assets. 

Valuation Procedures 

Nonprofits are responsible for assessing the value of noncash donations they receive to record these amounts on their financial statements. However, this value is not included in the written acknowledgement to the donor. Proper donor acknowledgement of noncash items includes the description of the property but not the value. 

This process may vary based on the nature of the donation. 

If the donation is a publicly traded security, value can typically be calculated by its fair market value. But if it’s a private stock, it might require an appraisal. 

For vehicles, value can be estimated based on fair market value of the vehicle, unless the nonprofit chooses to sell. In that case, the value is equivalent to the selling price. 

The valuation process is more complicated for artwork and other artifacts. For GAAP purposes, an organization may not record collectibles on its balance sheet under ASC958-360. In these cases, the donation is acknowledged but there is no financial or tax reporting for assets held for public exhibition, education or research in furtherance of the organization’s public service.  

Documentation and Recordkeeping 

Maintaining proper documentation is essential for noncash donations. This includes:

• Receipts of donation (the nonprofit must also provide this to the donor)
• Estimated and assessed value for internal reporting
• Methods of assessed value–e.g., through sale or appraisal
• Full copies of qualified appraisals
• Relevant tax forms, such as IRS Form 8283, Form 8282, and Form 990 Schedule M
• Financial Statements

Robust recordkeeping systems help nonprofits to stay compliant and facilitate more accurate financial reporting and auditing. 

Filing Required Forms 

Depending on the value of the noncash donation, nonprofits may need to file specific IRS forms:

• Form 8283: This filing is included in a donor’s tax return to disclose all noncash donations valued at $500 or more and includes documentation to support the assessed value (such as a qualified appraisal). In certain situations, the donor may be required to have the nonprofit sign the form as the recipient of a donation as the form also acknowledges the receipt of the gift for the donor. 
• Form 8282: If the nonprofit sells or disposes of the donated property within three years of receiving it, it must file Form 8282 to report the transaction. This form also confirms or updates the value of the donated property. The IRS uses this information to verify that the donor’s contribution deduction was accurate. As such, the organization should also provide a copy to the donor.
• Form 990 Schedule M: The nonprofit must report noncash contributions on Schedule M of IRS Form 990. This details all noncash donations the nonprofit received during the year, including the number of contributors, value, revenue amounts, and types of property. It helps the IRS verify that all donations are reported and valued correctly.
• Form 990 Schedule B: This filing discloses the identity of significant contributors to the nonprofit. It lists all contributors who donated over $5,000 or 2% of current year contributions, depending on the rule followed in Form 990 filing, during the tax year and includes the identity of donors as well as the value and types of contributions. 

Donor Acknowledgments

While not explicitly required for donations under $500, it is good practice to provide all donors with written acknowledgments of their noncash contributions. These should include a description of the donated property but generally not assign a specific value. Instead, valuation should be conducted by a qualified appraiser.

Common Challenges and Mistakes

While noncash donations can be extraordinarily valuable for nonprofits, processing them may pose several notable challenges:

• Determining Fair Market Value: Accurately determining the fair market value of donated assets may be difficult, particularly for unique items like artwork or collectibles. This is especially true if the donor or nonprofit does not have convenient access to a qualified appraiser. The nonprofit is not responsible for determining fair market value of noncash donations for the donor. In some cases, the organization may follow ASC 958-360 and not value the asset for balance sheet reporting. 
• Ensuring Qualified Appraisals: The IRS has strict requirements for appraisals and not all appraisers can satisfy these requirements. Before proceeding with an appraisal, nonprofits and donors must carefully vet appraisers to ensure they have the necessary expertise and qualifications.
• Clarifying Appraisal Responsibilities: There are no specific requirements regarding who must facilitate the appraisal. Instead, this comes down to an agreement between the organization and the donor. Misunderstandings can arise when it is unclear who is responsible for scheduling and paying for the appraisal.
• Filing Errors and Omissions: Failing to file required forms like Form 8282 can result in penalties and potential audits. This is often due to a lack of expertise or dedicated staff responsible for these filings within the organization.

By being aware of these common challenges and implementing robust policies and procedures, nonprofits can mitigate risks and ensure compliance when accepting noncash donations.

Navigate Noncash Donations with Smith + Howard: Expert Nonprofit Accounting Advisors

Noncash donations can be a valuable resource for nonprofit organizations, providing access to assets unavailable through traditional funding sources. They also make it easier for donors to support causes they are passionate about. Properly processing and reporting on such donations requires a thorough understanding of IRS regulations, valuation and reporting obligations. 

Smith + Howard’s nonprofit tax experts have deep experience in this area and work with nonprofits to help them make the most of their donations–cash or noncash–while staying compliant with all reporting requirements. 

If you would like for us to undertake a complimentary review of your most recent Form 990 to provide insights on missed reporting opportunities or to provide additional confidence that your reporting is in order, please complete the Contact an advisor form below.