Nonprofit Insider

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February 2013 Vol. 4 No. 2

U H Y LLP C e r t i f i e d P u b l i c A c c o u n t a n t s
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New Guidance on Noncash Gifts

By Cindy McGiffin, Senior

Receipts For Contributions

What They Say (And Dont Say) Really Matters
By Cindy McGiffin, Senior

he AICPA is in the process of overhauling its Not For Profit Entities Audit and Accounting Guide. To that end, theyve issued a working draft of the revised guide for review and comment. The document isnt yet published, though note that an area of focus for the guide is on noncash gifts. For example, five paragraphs on the subject have been expanded to over twenty-five, plus theres a new section on contributed fund-raising material and advertising. When published, the revised guide will provide in-depth reporting and measuring direction on noncash gifts, including: Contribution revenue versus an agency transaction: The revised guide provides two conditions that must be met in order for a gift in kind to be reported as a contribution: 1) discretion in using or distributing the gift, and 2) risk and rewards of ownership. If both conditions are not met, the gift in kind should be reported as a non-

financial asset, along with a related liability for the ultimate distribution of the asset. Fair value measurement of gifts in kind: The revised guide addresses the unique challenges fair value measurement poses to gifts in kind, such as 1) no active market for the contributed item, 2) contributed items with markets with which the not for profit (NFP) is unfamiliar, and 3) contributed items not used by the NFP at their highest level or best use. Gross or net presentation of gifts in kind: The revised guide provides
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ant proof that somebody is really looking at those letters charitable organizations provide to acknowledge contributions? In a recent tax court decision, a married couple was denied charitable contributions in excess of $22,000 made to their church because they did not have adequate substantiation of the charitable deduction. First, the background: the IRS requires documentation for contricontinued on page 2

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UHY LLP brings specialists in nonprofit solutions in accounting and tax.

February 2013 Vol. 4 No. 2

New Guidance on Noncash Gifts

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direction on when gifts in kind that are subsequently sold by the NFP should be reported gross, i.e. sales reported separately from the original contribution with the corresponding amount of cost of sales, or net. Examples are provided of transactions that would typically be reported under the gross method and the net method. Exceptions to this are explained when contributed items are sold at fund-raising events. The revised guide has added a section on contributed fund-raising material and advertising, where the

NFP benefits from material or advertising, provided free of charge by others, that encourages the public to contribute or communicate the NFPs mission. In this case, the NFP should recognize a contribution and related offsetting expense. The guide provides examples of activities that would qualify. A key factor in determining if a contribution should be recorded is the NFPs involvement in determining and managing the message or the use of materials. The higher the involvement or management, the more like-

ly a contribution should be recorded. Again, the revised guide provides examples of when the NFPs involvement would favor the recognition of a contribution and examples of when it would not. The additional detail and practical examples provided for gifts in kind in the revised Not For Profit Entities Audit and Accounting Guide should prove to be a valuable resource The comment period on the new guide ended in October 2012 and no release date has been announced. My suggestion? Stay tuned and get ready!

Receipts for Contributions

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butions of $250 or more to a charity. Specifically, they require The amount contributed; Whether any goods or services were provided in consideration for the contribution. If goods/services were provided, a description and good faith estimate of their value is required; and Contemporaneous and written documentation. For this purpose, contemporaneous means that the documentation is obtained by 1) the date the tax return is filed or 2) the

due date of the return, including extensions; whichever is earlier. In the tax court case, the taxpayers had a letter from the church stating the amount of the contribution. However, the letter did not include a statement to indicate whether any goods or services were provided in consideration for the contribution. When the deduction was denied, the taxpayers obtained a second letter from the church that included the missing information. However, since the second letter was not contemporaneous, the deduction was

denied. It appears the IRS is making no exceptions to the requirements, regardless of intent. Words of advice: If you run a church or other charitable organization that receives contributions, make sure your organizations acknowledgement letters to your donors contain all of the IRSs requirements. If you provided no goods or services in exchange for the contribution, say so! Correct and timely acknowledgements now can help avoid embarrassment and donor loss in the future.

UHY LLP brings specialists in nonprofit solutions in accounting and tax.

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