'Tis the Season for End-of-Year Giving: Practical Tips for Receiving and Receipting Charitable Donations

With many nonprofits beginning to receive end-of-year donations, now is a good time to review your organization’s gift acceptance and donation receipting policies. Many nonprofits rely on donations to fund their operations and carry out their mission. However, nonprofits should be aware that different risks and obligations may accompany the receipt of certain donations, depending on their type and size.

Cash Donations

Cash donations account for the majority of all charitable donations and are the easiest for a nonprofit to manage. As a general rule, an organization has no legal obligation to provide its donors with an acknowledgement of any donation. However, under the Internal Revenue Code, a donor cannot claim a deduction for a contribution unless the donor has evidence that a donation was made.*

For donations of less than $250, either an acknowledgement by the charity, a cancelled check or credit card receipt is sufficient evidence.  However, for donations of $250 or more, the donor cannot claim a deduction unless the donor receives a contemporaneous written acknowledgment of the donation from the recipient nonprofit.

This acknowledgement must state:

• the name and address of the nonprofit organization;
• the date of the donation;  
• the amount of cash and a description (but not the value) of any property other than cash contributed; and  
• whether or not the organization provided any goods or services to the donor in consideration, in whole or in part, for the donation.

If goods and services were provided to the donor, the nonprofit’s acknowledgement must also include a description of these benefits and a good faith estimate of their fair market value. Donors will need to have these donor acknowledgements in hand when they file their 2017 tax returns.  Therefore, your organization can either acknowledge each donation from a donor as it is made, or it can provide a single year-end acknowledgement which lists all of the donations made by the donor during the year.  Because the donor needs this information when filing his or her tax return, your nonprofit should aim to provide the year-end acknowledgement by January 31, 2018.

Noncash Donations

Noncash contributions can include gifts of stock, real estate, and tangible property, such as cars, used computer equipment, donated clothes, or household goods. While these gifts may be of use or value to your nonprofit, noncash gifts can also come with special costs, risks, and other considerations, making them more complicated to manage than cash donations. Examples of these considerations include:

Acknowledging the Donation: The same rules apply to donors who wish to claim a deduction for noncash gifts.  They must have evidence that the donation was made.  Because there is no cancelled check or credit card receipt, the donor must obtain a contemporaneous acknowledgement from the charity that the donation was made.  The only exception is when the donor drops off clothing, books or similar items at a designated drop box maintained by an organization such as Goodwill Industries.  In such case, no acknowledgement is required.   But the charity should keep in mind that it is the donor’s responsibility to establish the dollar value of his or her donation.

The donor acknowledgement should provide:

• the name and address of the nonprofit organization;
• the date of the donation;
• a description of the donated property; and  
• whether or not the organization provided any goods or services to the donor in consideration, in whole or in part, for the donation.

In no event should the charity attempt to value the property when providing the acknowledgement, even if the donor asks the charity to do so.

Financials costs: Receipt of real estate or personal property may subject your nonprofit to ongoing maintenance or carrying costs. For example, a gift of real estate could obligate your nonprofit to pay for insurance, maintenance, and property taxes, along with any up-front costs required to renovate or rehabilitate the property. Staff and volunteer time may also be required to manage the new asset. If your nonprofit intends to sell the asset, then it must also account for the time and costs required to appraise the asset and perform the sale.

Liability: Receiving and owning noncash assets may also expose your organization to liability. For example, your nonprofit may be responsible for rehabilitating real estate that’s affected by environmental contamination under state and federal environmental liability laws.

Marketability: Nonprofits may accept noncash gifts with the intention of selling the asset for cash. However, an asset may be difficult to sell because of inherent problems with the asset – gifts that turn out to be “lemons” – or a lack of market demand. Some assets, like closely held securities, may also have restrictions on their sale.

Your nonprofit should carefully weigh these costs and risks against the benefits of a potential noncash contribution, and should decline to receive assets that would disproportionately burden or harm the organization. One proactive option is to adopt a gift acceptance policy that creates a roadmap for how the organization will review and approve different types of gifts. Gift acceptance policies can identify categories of gifts that the organization will and will not accept, and/or describe the process for evaluating gifts on a case-by-case basis.

The existence of a gift acceptance policy can help your nonprofit evaluate gifts in a more consistent manner and clarify who is responsible for the decision-making process. These policies can also provide a buffer against donors who try to make noncash contributions late in the year, which can create pressure to accept the gift in time for the donor to claim a same-year deduction. Nonprofits in this situation can refer to their gift acceptance policies to avoid making a hasty or ill-informed decision to accept the gift.

The Nonprofit Risk Management Center has a sample gift acceptance policy that may be suitable for your organization, but you should have your attorney review the policy to ensure it is tailored to the needs of your organization.

*The only exception is when the donor makes a contribution of more than $75 and receives something of value in return for the donation.  In that case the nonprofit must provide the donor with a good faith estimate of the fair market value of what was provided in return for the donation.  For example, if the donor receives a ticket to a concert for making a $100 contribution to the nonprofit, the amount the donor can deduct is reduced by the fair market value of the ticket and the charity must give the donor a good faith estimate of the ticket’s value. See Tax-Exempt Organizations Alert: Requirements for Acknowledging Charitable Donations for a more detailed explanation.