Posted by: Christina Bell, CPA | August 18, 2015

Quid Pro Quo Contribution – What Your Nonprofit Should Know

Posted by Christina Bell, CPA

Quid Pro Quo Contribution - Nonprofit CPA FirmThe IRS refers to transactions in which the donor makes a payment partly in return for some type of goods or services (a benefit received) and partly as a contribution as quid pro quo contributions. Examples of quid pro quo contributions include fundraising dinners, benefit concerts, and sports events, where the price charged is substantially greater than the cost of the items. For all quid pro quo contributions over $75, the IRS requires that organizations provide donors with the estimated fair market value of the goods or services received by the donor in return for the contribution. This estimated value is important because charitable contributions are only deductible by the donor to the extent the donation value exceeds the value of goods or services received.

From an accounting perspective, nonprofit organizations should recognize the revenue earned from quid pro quo contributions in accordance with FASB ASC 958-225, as such organizations should report net amounts for its special events only if they result from peripheral or incidental transactions. Costs netted against receipts from peripheral or incidental special events are limited to direct costs. However, special events often are ongoing and major activities and therefore, revenues and expenses should be recorded gross on the statement of activities. Events are considered ongoing and major if they are normally part of an organization’s strategy and are normally carried on, or if gross revenues or expenses are significant in relation to the organization’s annual budget. FASB ASC 958-225 provides 3 separate options in displaying special event revenue from ongoing and major activities on the statement of activities. These 3 options are described below for the following scenario:

Scenario –

Nonprofit A sells 300 tickets at $100 per ticket for their annual fundraising dinner that is ongoing and a major activity. The fair value of each ticket is $75. In addition, Nonprofit A incurs $5,000 of other direct costs in connection with promoting and conducting the event.

Option 1:

  Special Event Revenue (Ticket Sales) $      30,000
  Fundraising Expense $        7,500


Option 2:

  Special Event Revenue (Ticket Sales) $       30,000
  Less: Costs of Direct Benefits to Donors          (2,500)
  Net Revenues from Special Events $       27,500
  Fundraising Expense $        5,000


Option 3:

  Contributions $      22,500
  Annual Dinner Sales           7,500
  Less: Costs of Direct Benefits to Donors          (2,500)
  Contributions and Net Revenue from Special Events $       27,500
  Fundraising Expense $        5,000


By being aware of both IRS and accounting reporting requirements nonprofit organizations can help ensure their compliance with each.

Photo by thomas chauvin (License)

Posted by: Casey Hagy, CPA | August 4, 2015

The AICPA Introduces the Not-for-Profit Certificate Program

Posted by Casey Hagy, CPA

Nonprofit Certificate - Nonprofit CPA FirmAs described in our earlier blog “The AICPA Introduces the Nonprofit Membership Section,” the AICPA has broadened their membership requirements for non-CPA associates and added a not-for-profit (NFP) section which allows non-CPAs to join the AIPCA and have access to numerous NFP resources. In an effort to strengthen this new NFP section, the AICPA recently launched the NFP Certificate Program. The Certificate Program is an on-demand learning experience that covers the essentials of NFP financial responsibility. There are four main sections to the program as listed below:

  • Introduction to Not-for-Profit Entities
  • Accounting and Financial Reporting
  • Tax Compliance
  • Governance and Assurance

The Certificate Program will benefit CPAs who perform NFP engagements, as well staff and board members at NFPs who wish to improve their NFP financial expertise. There are no prerequisites to complete this program, and the course totals 40 hours of eligible CPE credit.

For more information about the program, please visit NFP Certificate Program.

I will post an update after personally completing the Certificate Program. Stay tuned!

Photo by Horia Varlan (License)

Posted by Christina Bell, CPA

Delaware Alliance Nonprofits - Nonprofit CPA FirmThe Delaware Alliance for Nonprofit Advancement (DANA) 2015 Annual Conference was held on June 15th at the Chase Center on the Riverfront in Wilmington, Delaware. Over 900 nonprofit leaders and others within the industry attended to hear keynote speaker Mr. Jim Collins.  Mr. Collins has authored or co-authored six books that have sold in total more than ten million copies worldwide. They include: GOOD TO GREAT, a #1 bestseller, which examines why some companies and leaders make the leap to superior results, along with GOOD TO GREAT AND THE SOCIAL SECTORS. Jim’s presentation revolved around twelve questions which were designed to help efficiently access the full body of his work. Each question was listed in what Jim described as a highly effective sequence and included the corresponding reading from one or more of his books.

The three most valuable insights I personally took away from the discussion of these twelve questions were:

  • Commit to a 20-Mile March – Mr. Collins gave the example of imagining a man determined to walk across the United States, and how he could accomplish his goal faster by committing to walking 20 miles every single day, rain or shine, rather than walking for 40-50 miles in good weather and then very few miles or not at all during poor conditions. Mr. Collins’ research showed that great companies develop a plan, and then carefully and methodically follow that plan, focusing on long-term goals rather than changing course when circumstances change, whether for the better or the worse. For example, Southwest Airlines made it a goal to turn a profit every single year. While the airline industry as a whole lost money during the recession, Southwest achieved their goal, keeping themselves in the black for 30 consecutive years. As Mr. Collins explained in the book, GREAT BY CHOICE, Southwest did it through careful, consistent growth: “Southwest had the discipline to hold back in good times so as not to extend beyond its ability to preserve profitability and the Southwest culture. It didn’t expand outside Texas until nearly eight years after starting service, making a small jump to New Orleans. Southwest moved outward from Texas in deliberate steps — Oklahoma City, Tulsa, Albuquerque, Phoenix, Los Angeles — and didn’t reach the eastern seaboard until almost a quarter of a century after its founding. In 1996, more than a hundred cities clamored for Southwest service. And how many cities did Southwest open that year? Four.”
  • Practice the Stockdale Paradox – Admiral James Stockdale was held in captivity and tortured during the Vietnam War for eight years and had no reason to believe he would survive the prison camp. And yet, as Stockdale told Collins, he never lost faith during his ordeal: “I never doubted not only that I would get out, but also that I would prevail in the end and turn the experience into the defining event of my life, which, in retrospect, I would not trade.” Then comes the paradox: While Stockdale had remarkable faith in the unknown he noted that it was always the most optimistic of his prison mates who failed to make it out of there alive. “They were the ones who said, ‘We’re going to be out by Christmas.’ And Christmas would come, and Christmas would go. Then they’d say, ‘We’re going to be out by Easter.’ And Easter would come, and Easter would go. And then Thanksgiving, and then it would be Christmas again. And they died of a broken heart.” What the optimists failed to do was confront the reality of their situation. They preferred the ostrich approach, sticking their heads in the sand and hoping for the difficulties to go away. Mr. Collins and his team observed a similar mindset in the good-to-great companies. They labeled it the Stockdale Paradox and described it like so: “You must retain faith that you will prevail in the end, regardless of the difficulties AND at the same time you must confront the most brutal facts of your current reality, whatever they might be.” And, “What separates people is not the presence or absence of difficulty, but how they deal with the inevitable difficulties of life.”
  • What is Greatness? “Greatness is not a function of circumstance. Greatness, it turns out, is largely a matter of conscious choice, and discipline.”

Jim Collins’ presentation at the DANA’s 2015 annual conference was a great learning experience and I would encourage those within your organization to read over each of the twelve questions. Having the opportunity to participate in this once-in-a-lifetime speech is just one of the many benefits of being a member of DANA.

Photo by Jeff Kubina (License)

Posted by: Christina Bell, CPA | July 6, 2015

The AICPA Introduces the Nonprofit Membership Section

Posted by Christina Bell, CPA

4579243797_183432f005_mIn an effort to better serve the nonprofit community, the AICPA’s governing Council voted to broaden Section membership requirements for non-CPA Associates. Those who have management or governance responsibilities with respect to a nonprofit, including those who serve as board members or as volunteers, are eligible to join the AICPA as a non-CPA Associate. Once you have joined the AICPA, you can join the Nonprofit (NFP) Section. Current Regular Voting, Associate, and International AICPA members are also eligible to the join the NFP Section.

The AICPA’s NFP Section is a centralized resource supporting NFPs and the professionals that serve NFPs, including managers, board members, and volunteers.  Its mission is to deliver information, tools, and resources that facilitate timely compliance with standards and regulations and promote the excellence of members as leaders in the NFP sector. Benefits of joining the NFP section include the following:

  • Timely communications covering breaking news. Section members receive e-alerts and access to interactive webcasts covering NFP trends, new guidance, and changes made by standard setters and regulatory agencies.
  • resource library which includes information such as sample financial statements and note disclosures, board governance resources and policy examples, and articles that relate to a variety of issues affecting NFPs.
  • Exclusive discounts on high-quality live and on-demand CPE-eligible courses on topics such as NFP accounting, auditing, tax compliance, and board governance The NFP Section also provides 4 free webcasts per year as a benefit. These webcasts are announced in the e-alerts and offered throughout the year.
  • Opportunities for peer-to-peer learning and information sharing, both online and in person
  • Special discounts on AICPA NFP products and resources including the new Nonprofit Certificate Program. The Certificate Program is designed for CPAs who perform NFP financial reporting and tax engagements as well as staff and board members at small and medium-sized NFPs. More information on the course such as its learning objectives and number of hours can be found on the AICPA website.

Membership costs to join the NFP Section is $199 annually in addition to the normal AICPA membership costs. We encourage you to visit to learn the NFP section and its potential benefits to your organization.

Photo by Howard Lake (License)


Posted by: Lou Volpe, CPA | June 22, 2015

Top Hat Plans Viewed Through the Looking Glass

Posted by Lou Volpe, CPA

Top Hat Plans - Nonprofit CPA FirmAt one point the top hat was commonly found throughout American history and pop culture.  During the 19th century, it served as a symbol of freedom sitting atop President Abraham Lincoln’s head as he navigated our country’s Civil War.

During the 20th century, it was a staple of Uncle Sam’s attire as he recruited soldiers for both World Wars.  It even received fame among Disney fans as “The Mad Hatter” attending a tea party in the Adventures of Alice in Wonderland.  However, as we moved into the 21st century, the top hat began to take on a new form.  Instead of serving as a recognizable piece of history fashion or pop culture, it is now being used to describe nonqualified retirement plans that are limited to a select group of key employees and that are exempt from ERISA regulations, otherwise known as Top-Hat plans.

A specific type of Top-Hat plan which is beneficial to not-for-profit organizations is a non-governmental 457(b) deferred compensation plan.  Internal Revenue Code Section 457 provides tax advantaged treatment for certain nonqualified deferred compensation plans and requires that the plan sponsor either be a state or local government or a tax-exempt organization under IRC 501(c). These Top-Hat plans must limit participation to groups of highly compensated employees or groups of executives, managers, directors, or officers and may not cover rank-and-file employees.  Top-Hat plans may be formal or informal, and they need not be in writing.  While many plans are set forth in extensive detail, some are referenced by nothing more than a few provisions contained in an employment contract.  In either event, the form of a non-qualified deferred compensation arrangement is just as important as the way the plan is operated.

Non-governmental 457 plans must remain unfunded.  That means the plan assets remain the property of the employer and are not set aside for the payment of benefits under the Top-Hat plan.  Therefore, the plan assets are available to the employer’s general creditors in the event of litigation or bankruptcy.  A common form of practice for these plans is to use “rabbi trusts” to hold employee deferrals.  In this instance, the trust is funded, but the trust assets still remain available to creditors since employees are lower in priority than general creditors in the event of legal claims against the employer.

Contributions to 457(b) plans may include employee salary deferrals and employer contributions up to $18,000 in 2015.  The employee deferral contributions are reported on Form W-2 and are tax deferred.  Any earnings on the retirement money are tax-deferred to the participants as well, thus creating certain advantages for participating in these Top-Hat plans. Catch-up contributions for participants who are within 3 years of normal retirement age are available for both governmental and non-governmental 457(b) plans. These catch-up contributions allow eligible employees to contribute up to another full employee deferral limit with the amount limited to “unused” deferrals from previous years. However, an employee who already deferred the maximum in the 457(b) plan for all years of employment would not be able to use this type of catch up. In addition, the three year period must be continuous and must not include the year of retirement.  This double-limit catchup is available to both, governmental and non-governmental 457(b) plans.  However, the basic $6,000 catch-up contribution available to participants in 401(k), 403(b), and governmental 457(b) plans who are 50 years of age or older is not available in non-governmental 457(b) plans.

A special feature of the 457(b) plan is that they may be amended to allow designated Roth contributions and in-plan rollovers to designated Roth accounts.

Tax-exempt organizations have the ability to establish nongovernmental 457 plans as either eligible under IRC Section 457(b) or ineligible under IRC Section 457(f).  If the plan is established as ineligible under 457(f), the plan will be tax deferred and will allow contributions exceeding the annual deferral limit.  These plans and the associated deferrals are possible only if there is a “substantial risk of forfeiture.”  Once the risk is removed, the participant’s deferral amounts then become taxable.

In regard to filing and reporting, there are specific requirements that these plans need to follow.  IRC Section 457 plans are not required to file Form 5500 as they are not subject to Title I of ERISA.  In addition, nongovernmental 457(b) Top-Hat plans must file a notification of the plan’s existence with the Department of Labor.  There are also certain compliance issues that 457(b) plans may face.  Therefore, before you jump down the Top-Hat plan rabbit hole, please be aware of the following: failure to limit participation in a nongovernmental 457(b) plan subjects the plan to ERISA Title I funding requirements; nongovernmental 457(b) plans that must comply with the ERISA funding requirements will fail to satisfy IRC 457(b)(6), which provides that the plan must be unfunded; and contributions to a funded nongovernmental 457(b) plan are immediately taxable.

Ultimately, the advantages of establishing a nongovernmental 457(b) deferred compensation plan outweigh any limitations.  With these Top-Hat plans in place, state or local governments and tax-exempt organizations will be able to offer their highly compensated key executives the benefit of deferring their income until retirement, when in most instances, these participants will be in a lower tax bracket.  And just as the portrait of a top-hat-wearing Uncle Sam once recruited soldiers to war, these Top-Hat plans will assist organizations in recruiting qualified employees and will help them retain highly compensated key executives.

Photo by Dancing Lemur (License)

Posted by: Jonathan D. Moll, CPA | April 22, 2015

FASB Proposes Improvements to Not-For-Profit Financial Statements

Posted by Jonathan D. Moll, CPA

FASB Nonprofit Standards - Nonprofit CPA Firm Today (04/22/15) FASB issued a proposed Accounting Standards Update intended to improve existing standards for financial statement presentation for Nonprofit Organizations. A summary of the changes is provided, as well as, the full proposed ASU at The new standards will significantly change financial statement presentation for most nonprofit organizations.

The more significant changes include the following:

  • Net Asset Classification will include 2 classes, with donor restrictions and without donor restriction.  This replaces the current 3 class presentation.
  • Requires disclosure of both quantitative and qualitative information about liquidity
  • Reporting in the statement of activities on an intermediary measure of operations that is mission based
  • Requires the direct method for preparation of the statement of cash flows, with additional presentation of the indirect method for operating activities permitted but no longer required
  • Present information for all nonprofit organizations about expenses by function, nature, or both with enhanced disclosure requirements in notes if both are not on the face of the statement.

Additional information such as effective date will be determined by the Board after considering stakeholder’s feedback during this comment period on the proposed update.  Stay tuned.

Photo By peddhapati (License)

Posted by: Christina Bell, CPA | April 7, 2015

The TE/GE FY 15 Program Letter

Posted by Christina Bell, CPA

TE/GE Program Letter - Delaware CPA FirmIn December of 2014 the Commissioner of the Tax Exempt & Government Entities Division of the IRS (TE/GE), Sunita Lough, issued the TE/GE Program Letter for FY 2015. The letter is meant to serve as a document that discusses the TE/GE’s priorities and key areas of focus for the coming year. It is also meant to aid in the TE/GE’s mission of providing their customers (you) top quality service by helping them understand and comply with applicable tax laws and protecting the public interest by applying the tax law with integrity and fairness to all. A few of the priorities and key areas of focus described in the letter are summarized below.

1)      Accountability and Transparency – In accordance with the IRS Strategic Plan FY 2014-2017, TE/GE is entering FY 2015 focused on accountability and transparency.

2)      Continuous Improvement – The TE/GE is committed to improving processes, reducing taxpayer burden and capturing opportunities to eliminate waste. Last year, the TE/GE implemented the Form 1023-EZ that provided a simpler application process for qualifying exempt organizations. In FY 2015, the TE/GE wants to continue to review and improve the application process for all exempt organizations.

3)      Knowledge Management – The TE/GE will continue developing a knowledge management strategy during FY 2015 to foster consistency in the positions the TE/GE take issues on.

4)      Data-Driven Decision Making – The TE/GE is working towards equipping their workforce with the tools and data necessary to foster a culture of data-driven decision making to aid in identifying trends and future business issues and demands, finding opportunities to improve processes, quality and efficiency, and targeting existing and emerging high-risk areas.

Photo by Alan Cleaver (License)

Posted by: Christina Bell, CPA | March 23, 2015

2015 Brings Single Audit Changes

Posted by Christina Bell, CPA

A-133 Audit - Delaware CPA FirmOn December 26, 2013, the Office of Management and Budget (OMB) published in the Federal Register Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards; Final Rule. The guidance in this document supersedes the requirements found in OMB Circular A-133 Audits of States, Local Governments and Non-Profit Organizations as well as several other OMB Circulars.

Currently, all nonprofit organizations that expend $500,000 or more in federal funding in a given fiscal year are required to conduct a single audit, also known as an “A-133 Audit.” For fiscal years beginning on or after January 1, 2015 the single audit threshold increases to $750,000. Those organizations that expend less than $750,000 in federal funding will be required to make their records available for review or audit, if requested, to appropriate officials of the federal agency, pass-through entities, or the U. S. Government Accountability Office.  Federal funding includes funds received directly from federal agencies, as well as those received from pass-through entities, such as a state government.

The single audit threshold increase is not the only OMB Circular A-133 change nonprofit organizations should be familiar with. Other significant changes effective for fiscal years beginning on or after January 1, 2015 include the following:

  • Reportable Audit Findings – The reporting threshold for known questioned costs increases from $10,000 to $25,000.
  • Major Program Determination – The most notable changes in determining if a program is major includes the following:
    • The minimum threshold for a major program (Type A) will increase from $300,000 to $750,000 for organizations that expend between $750,000 and $25 million in federal funds.
    • Auditors previously had to ensure that 25 percent of federal expenditures were audited for a low-risk auditee, and 50 percent for an auditee not assessed as low-risk.  For fiscal years beginning on or after January 1, 2015 those coverage requirements have been lowered to 20 percent (low-risk auditee) and 40 percent (not a low-risk auditee).
    • A significant deficiency in internal control alone will not exclude a Type A program from being considered low risk.
  • Criteria for Low-Risk Auditee – Criteria to be considered a low risk auditee have been expanded to include the following:
    • The organization must have an unmodified opinion on their schedule of expenditures of federal awards (in relation to the basic financial statements as a whole).
    • The organization must not have a going concern opinion.
  • Findings – The new guidance places an increased emphasis on repeat findings. The required elements of a finding now include a statement about whether or not a finding is a repeat finding. In addition, if an audit finding from a previous year is not fully corrected by the subsequent year, the reason for the finding’s recurrence must be included in the schedule of prior audit findings.
  • Audit Reports Publicly Available – Audit reports will now be publicly available on the Internet through the Federal Audit Clearinghouse.

Nonprofit organizations should review, with the assistance of their auditors, their obligations under programs in which federal funds are received to ensure all requirements are fulfilled and determine whether the changes to OMB Circular A-133 affect future audit requirements.

Photo by frankieleon (License)


Posted by: Christina Bell, CPA | March 10, 2015

What Should Your Church Know about Social Security?

Posted by Christina Bell, CPA

Social Security ChruchesSocial Security and Medicare taxes are collected under the Federal Insurance Contributions Act (FICA) and the Self-Employment Contributions Act (SECA). Many people refer to contributions to Social Security and Medicare as either FICA or SE taxes. Employers and employees equally split the current 15.3% cost of Social Security and Medicare so that each party pays 7.65%. This is referred to as the payment of FICA. Self-employed taxpayers pay the full 15.3% themselves and often refer to this is as the payment of SE, or self-employment taxes.

Churches and qualified church-controlled organizations must pay FICA for employees (with the exception of ministers who are always considered self-employed for Social Security purposes and must pay SE taxes on their ministerial earnings) unless the organization has elected to exempt itself. The term “qualified church-controlled organization” means any church-controlled Section 501(c)(3) tax-exempt organization, other than an organization that:

1) Offers goods, services, or facilities for sale, other than on an incidental basis, to the general public at other than a nominal charge that is substantially less than the cost of providing such goods, services, or facilities, and

2) Normally receives more than 25 percent of its support from the sum of governmental sources and receipts from admissions, sales of merchandise, performance of services, or furnishing of facilities, in activities that are not unrelated trades or businesses.

In order for churches and qualified church-controlled organizations to become exempt from paying the employer share of FICA, the organization must file Form 8274, Certification by Churches and Qualified Church-Controlled Organizations Electing Exemption from Employer Social Security and Medicare Taxes with the Internal Revenue Service (IRS). It is important to note that very specific timing rules apply to filing Form 8274. Form 8274 must be filed before the first date on which a quarterly employment tax return (Form 941) would otherwise be due from the organization. The organization may make the election only if it is opposed for religious reasons to the payment of FICA taxes.

The election can be revoked by the IRS if the organization fails to file Form W-2, Wage and Tax Statement, for two years.

Once the election is made, the organization will no longer be subject to the employer share of FICA on wages disbursed to its employees as they have shifted the burden of FICA to their employees. The organization’s employees now must pay self-employment tax on the wages received. As such, employees of the organization must attach Schedule SE (Form 1040), Self-Employment Tax, to their income tax return.

Organizations who have received exemption from FICA may give their employees a Social Security “allowance” to help them pay their self-employment taxes; however, this allowance is considered extra income and, therefore, employees must report this allowance as income for federal income tax purposes and also for self-employment tax purposes.  This is also the case for ministers, who are always treated as self-employed individuals, even if the organization is exempt from FICA. In rare cases ministers can exempt themselves from paying their self-employment tax by meeting strict IRS guidelines.

If your organization is not sure it’s handling FICA and SE issues correctly, we’d be more than happy to answer your questions. Additionally, Publication 15-A from the IRS is a great resource.

Photo by 401(k) 2012 (License)

Posted by: Lou Volpe, CPA | February 18, 2015

Substantiation Rules Are Not Meant to be Broken

Posted by Lou Volpe, CPA

Substantiation Rules - Nonprofit CPA FirmThe holiday season has passed and it is now tax-filing season. During this time, charitable organizations need to make sure that they are doing everything in their power to assist their donors in following the IRS donation “substantiation rules.” Winter is already a cold and dark time of the year, so if charitable organizations doe not assist donors in following these substantiation rules, they could be leaving them out in the pitch black with frostbite. By following these substantiation rules, charitable organizations will not only provide the proof that their donors need to deduct financial gifts, but having proper documentation will also help their donors avoid any further problems with the IRS.

There are various substantiation rules and recordkeeping requirements that need to be met from both the donor and the charitable organization in order for a donor’s charitable contribution to be eligible for deduction on his income tax return.  A donor cannot claim a deduction for any monetary gift or for any unreimbursed out-of-pocket expenses related to giving services to a qualified organization unless the donor maintains adequate records of the contribution/out-of-pocket expenses in the form of either a bank record (i.e., cancelled check or credit card receipt) or a contemporaneous dated written acknowledgement from the charitable organization (i.e. receipt or letter).  For the dated written acknowledgement to be considered contemporaneous with the contribution, a donor must receive it from the charitable organization by the earlier of:  the date on which the donor actually files their income tax return for the year of the contribution; or the due date (including extensions) of the return.  One thing is for certain.  If these rules and requirements are not met, no deduction will be allowed.

When a donor makes a charitable contribution under $250, a cancelled check or credit card receipt is usually sufficient substantiation. When a donor makes cash or noncash contributions of $250 or more, the donor is required to obtain a contemporaneous dated written acknowledgement of the contribution from the recipient charitable organization.  Although the responsibility to obtain this dated written acknowledgment falls at the feet of the donor, the charitable organization can assist a donor by providing a timely written statement containing the following information:  1) name of the charitable organization, 2) amount of the cash contribution and description (but not the value) of a noncash contribution (separately itemized if one receipt is used to acknowledge two or more contributions), 3) date of the contribution, and 4) either a statement that no goods or services were provided by the organization in return for the contribution, or a description and good faith estimate of the value of goods or services that the organization provided in return for the contribution. If a religious organization provides only intangible religious benefits to a donor, the dated written acknowledgement does not need to describe or value those benefits.  It only needs to state that the religious organization provided the benefits.

If a donor receives goods or services in exchange for a single donation in excess of $75, the charitable organization must provide a contemporaneous dated written disclosure statement to the donor.  The required dated written disclosure statement must inform the donor that the amount of their contribution that is deductible for federal tax purposes is limited to the excess of money contributed over the value of goods and services provided by the organization.  The dated written disclosure must also provide the donor with a description and good faith estimate of the fair market value of the goods or services.

In addition, insubstantial goods or services a charitable organization provides in exchange for contributions do not have to be described in the dated written acknowledgement.  Goods and services are considered to be insubstantial if the payment occurs in the context of a fundraising campaign in which a charitable organization informs the donor of the amount of the contribution that is deductible and: the fair market value of the benefits received does not exceed the lesser of 2 percent of the payment of $104 (for 2014), or the payment is at least $52 (for 2014); the only items provided bear the charitable organization’s name or logo (i.e., calendars, mugs, or posters); and the cost of these items is within the limit for “low-cost articles,” which is $10.40 (for 2014).

When a donor makes a noncash contribution the donor is required to attach a completed Form 8283 to their tax return. Section A of Form 8283 should be completed by the donor to report donations of property in which the donor is claiming a deduction of $5,000 or less per item or group of similar items. Section A should also be completed by the donor to report donations of publicly traded securities. Section B of Form 8283 should be completed by the donor to report donations of property in which the donor is claiming a deduction of more than $5,000 per item or group of similar items. A written appraisal from a qualified appraiser is normally necessary before completing Section B of Form 8283; however, exceptions do apply. Those exceptions can be found in the IRS’s Instructions for Form 8283 along with other important information concerning appraisal requirements and when the appraisal must be attached to the return.

In determining whether the deduction for a group of similar items is more than $5,000, the donor should consider all items in the group, even if items in the group were donated to more than one charitable organization. However, a donor must file a separate Form 8283, Section B, for each charitable organization. Similar items of property are items of the same generic category or type, such as coin collections, paintings, books, clothing, jewelry, nonpublicly traded stock, land, or buildings.

Charitable organizations can assist their donors in meeting these substantiation rules by implementing certain best practices. These practices include providing dated written acknowledgement letters to all donors who contribute to the organization regardless of the amount contributed and verifying that the donor has obtained an appraisal, if necessary, before accepting a significant noncash contribution.

By working together to follow these substantiation rules, both donors and charitable organizations will be able to enjoy the many benefits that can be obtained.  Donors will be able to claim a charitable contribution on their income tax returns without having to worry about any future issues with the IRS during this already stressful time of the year.  And charitable organizations will be able to maintain a strong foundation with their donors and may even attract new donors to their cause due to their diligence in making sure that their donors’ charitable contributions are acknowledged and properly documented.

Photo by HA! Designs – Artbyheather (License)