More Boot Camp Questions & Answers

Q: Where do I find out about raffles and raffle registration in California?

A: The California Attorney General's Office is where you get the forms and the CAN website has a nice FAQ section on raffles.

Q: Our organization collects funds and items from donors to give to another organization. How do we handle these transactions in our accounting system?
A: It sounds like these might be considered pass-through transactions and subject to SFAS 136 rules. For a clear description of these rules and how to handle them check out this link for more information and here to buy the book.

Q: How do we prove that the board has reviewed our 990 before we submit it?
A: [The new form 990 has a yes or no question as to weather or not the the governing body of the nonprofit has reviewed the form 990 prior to submission. Can you guess what answer they want to see here?]
From the Independent Sector's guide to the new 990:

The organization must explain (in Schedule O) the process, if any, it follows to have officers, board members, committees, or management review the prepared Form 990, when that review happened, and the extent of the review. The instructions clearly say “If no review was conducted, state ‘No review was conducted.’ ” The IRS does not require or recommend any particular procedure for reviewing the Form, but most organizations will want to ensure that their senior staff managers and/or the board committee responsible for overseeing financial policies and procedures have a chance to review the Form before filing.

Is A Donation To An Individual Tax Deductible?

The short answer, according to the IRS and Publication 526, is no. I have been asked this question several times over the years and there is one thing people always get stuck on: They want to donate money to a specific person that charity XYZ works with. They will write the check to the charity but specify who the money should be spent on. That is a charitable donation, right? Wrong. To quote from the IRS:

You cannot deduct contributions to specific individuals, including the following.

• Contributions to individuals who are needy or worthy. This includes contributions to a qualified organization if you indicate that your contribution is for a specific person. But you can deduct a contribution that you give to a qualified organization that in turn helps needy or worthy individuals if you do not indicate that your contribution is for a specific person.

  Example. You can deduct contributions for flood relief, hurricane relief, or other disaster relief to a qualified organization. However, you cannot deduct contributions earmarked for relief of a particular individual or family.

• Payments to a member of the clergy that can be spent as he or she wishes, such as for personal expenses.

• Expenses you paid for another person who provided services to a qualified organization.

  Example. Your son does missionary work. You pay his expenses. You cannot claim a deduction for your son's unreimbursed expenses related to his contribution of services.

• Payments to a hospital that are for a specific patient's care or for services for a specific patient. You cannot deduct these payments even if the hospital is operated by a city, state, or other qualified organization.
  

This is not to say that those donors cannot donate to those individuals at all, just that those donations will not be tax deductible.

Shopping for Charity / Embedded Giving

So did anybody out there buy products and gift for folks because a portion of the proceeds went to charity? Did any of you have one these programs for your organization? So how would you book those?

I think as the popularity of these kind of programs continues to grow there will be more and more questions raised. I'm for encouraging donations but there needs to be some serious accountability in these programs to make sure the $$ gets to the charities. And will programs like these hurt direct contributions to charities in the long run?

Boot Camp Q & A - Gifts-in-kind Valuation

Several questions from the last book camps have been about non-cash donations and how to value them. The PPC Guide to Contributions has the best guidance out there on the subject and I still highly recommend them, a worthy investment for your nonprofits financial well being.

Q: How do we value food donations for our, "Taste Of..." event?

A: Fair value must be determined. According to SFAS 157, Fair Value Measurements, the fair value is, "the price that would be received to sell an asset or paid transfer of liability in an orderly transaction between market participants at the measurement date. The quoted price for identical assets in an active market is the most reliable evidence."

For this question, if a restaurant is providing you with 300 deserts, what do they sell the deserts for? If they are catering at your event, what do they normally charge for catering? Those quoted prices (or better yet and invoice) would be what you would use to value the donations.

Q: Can the suggested starting bid on an item to be sold at auction be used as the fair value?

A: Yes, with exceptions. If a vendor gives you something to auction for your charity event and places a "suggested starting bid" sticker on it, that can be used. But if you have sold similar items before and what they suggest doesn't match what you have used in the past that suggestion won't work. Checking other resources on how the item might be valued would also be a good idea.

Q: We have a golf tournament where everything is donated. Donors then buy tickets for the event. Is the whole ticket deductible to the those donors?

A: From what I can tell it is not. The non-deductible portion of the ticket represents the estimated fair market value of the goods or services received by the donor in return for the contribution. How much would the donor normally have had to pay to play golf at the location? The fact that the nonprofit did not incur any costs for the facility is irrelevant to the benefit received by the donor.

Q: What are some resources for valuing donations?

• Association of Evangelical Relief and Development Organizations

• Determining the Value of Donated Property (IRS pub. 561)
  
  
• eBay.com
  

• Salvation Army's Donation Valuation Guide

• SFAS 157, Fair Value Measurements

• TurboTax ItsDeductible

Donated Advertising

A reader emailed me a question about donated advertising. They wanted to know how to book the advertising, they are a small group and the value of the donated advertising was over three times their annual budget.

The way it is supposed to work is that if you are the recipient of any kind of donated advertising you must book it as a contribution and then as an offsetting expense as well.

But the value of the donated advertising must be equivalent to what someone would normally pay for that advertising. For example say your organization gets donated PSAs every night at 3:00 am for a week on a local radio station. The value of that donation should be based on the advertising rates at 3:00 am, not for prime time advertising rates which would be higher.

8-7-07 Boot Camp Questions

From the August 7 Boot Camp in Eureka:

Q: How many years do we keep donation records?
A: I have not found any official record keeping guidelines but looking at samples of other organizations in seem to range from 5 years to permanently, the latter for donated works of art, etc. My guess is that as long as you maintain a donor database of any kind you will want to maintain a record of anything that person has given you.

Q: Are the administrative charges from a fiscal sponsor an admin expense or program?
A: From what I have been able to find it is an admin expense. Lots of great info on fiscal sponsorships can be found here.

Q: Are donations to churches subject to the $250.00 threshold?
A: Yes. If a person donated $250.00 or more to a church, or any nonprofit for that matter, they must get proof of that donation from the church or charity. But Separate contributions are not aggregated for purposes of measuring the $250 threshold. For more information on churches, religious organizations and the IRS download this nice document. For others get the donation publication from the IRS is this blogs resources section.

Q: Should we list the building a nonprofit owns at its assessed value or its market value?
A: From what I can find out now and what I remember from my accounting classes you would use the assessed value as it is documented and verifiable.

Anybody have different answers to these questions? Post them in the comments below. Did I forget anyones questions? Post them below too.

Boot Camp Questions - Donations

Question: For a dinner-dance type fundraiser ticket, what is the portion of the ticket price is a donation?

Answer: Everything beyond what is a direct benefit to the donor. Those items are the actual cost of the items and services furnished to the attendees as inducements to attend the event: The food and beverages, the ballroom, the band, the decor.

Question: When do you value donations of stock?

Answer: The date the shares are transferred to your organization, the date of the gift. If a donor wishes to give your organization a gift of stock and take advantage of any tax deductions for tax year 200X they must make sure the transfer takes place before December 31 200X.

If they ask their broker to make the transaction in December but the broker doesn’t post the transfer until January 2nd, then the donation will have in fact taken place in January, not December.

Donation Transactions

There were some questions at the latest boot camp on the specific journal entries for donations to be auctioned off or re-sold. From the great PPC Guides, I recommend them to any nonprofit finance professional, an excerpt:

"Organizations may receive contributions of gifts-in-kind to be used for fund-raising purposes. A common example is where an organization receives tickets, gift certificates, or merchandise from donors to be sold to others during an auction. An organization should recognize the donated item to be used for fund-raising purposes as a contribution and record it at its estimated fair value. When the item is subsequently sold (such as at auction), any difference between the item'’s initially estimated fair value and the amount ultimately received should be recognized as an adjustment to the original contribution amount.

For all practical purposes, the initial estimation may not be that important - the eventual contribution amount that is recognized will be what someone was willing to pay for the donated item. Organizations should use their best estimates when initially valuing the donated items and adjust the amounts later when the actual auction takes place. As a practical matter, the time period between the donation of items for an auction and the actual auction may be short. Accordingly, some organizations may wait to record the items until they are actually sold. That would not be appropriate, however, if the items were received before year-end and the auction was held after year-end.

Example: An organization is given a piece of jewelry valued at $3,000 to be auctioned off to the highest bidder at the organization's annual fund-raiser. The journal entry to record the initial gift-in-kind contribution is as follows:
Debit - Asset $ 3,000
Credit - Contribution revenue $ 3,000

At the fund-raiser, an individual purchases the jewelry for $5,000. The journal entry to adjust for the sale is as follows:
Debit - Cash $ 5,000
Credit - Asset $ 3,000
Credit - Contribution revenue $2,000

If the jewelry sold at auction for only $1,000, the journal entry to record the sale would then be as follows:
Debit - Cash $ 1,000
Debit - Contribution revenue $2,000
Credit - Asset $ 3,000"

Hope that helps! And you should check out PPC's guide to Expenses as well.

Latest questions from a Boot Camp

Can a 501 (c) 3 donate to a 501 (c) 6?
If the missions are similar then we think yes, it should not be an issues. You said if I remember rightly that it was some old office equipment. If all the items to be passed on are fully depreciated then it really wonÂ't be a problem either way since there is technically no book value moving between the organizations.

Is a home office deductible if used for a charity?
Unfortunately no, just the cost of materials used (paper, ink, staples and such).

Have there been any changes to SFAS 116?
No new changes, it is still in effect.

Anybody have different answers?

Some answers to questions posed at the Eureka boot camp

Q: Why is the Chart of Accounts numbered?

A: To make it easier to index and catalogue your chart items and when you had to do accounting on ledger sheets by hand it was easier to write 2010 that “accounts receivable – grants receivable” in the little green spaces.

Q: Is a PSA donated air time or contractual obligation?

A: From what I have been able to dig up it is a donation even though they are required to make the time available.

Q: Specifics for letter to a donor, what the nonprofit gives them.

A: See the link in the IRS section to the right labeled, “Contributions Guidelines for Donors.”

Q: A nonprofit gives money to a community foundation to create an endowment. Is that money permanently restricted?

A: From what I have found it all depends on how you create it. Can you revoke the “gift” to yourself? I would guess that the money would be treated as permanently restricted until the nonprofit changes the status. It is different to me than a board designated fund always being considered unrestricted because in the above question you are giving control of the money to another organization.

Q: How to book membership income when the “membership” is actually a donation?

A: If your group solicits membership as a way of soliciting donations but no real value is exchanged for the membership, that membership is considered a donation and entered on your books as such. If the “member” gets a tote bag or equivalent item with their membership the value of that is deducted from the contribution and put into the earned income section.

Q: Are volunteers reported under a nonprofit’s worker compensation insurance?

A: By law, workers' compensation benefits for volunteers are not required. A volunteer who does not receive compensation for his or her work is not entitled to workers' compensation benefits, unless the agency for which the volunteer works chooses to provide these benefits (See Labor Code Section 3363.5).

I don’t claim to have all the right answers listed, just what I have been able to find through my research. Anyone have any different ones? Post them in the comments please!

New link

I added a new link in the IRS section that tells almost all one needs to know about how to value a donated item, lots of questions came up about that and who should do what. I hope it helps.