Our last article was the first in a series regarding contributions entitled “Reporting Requirements for Contributions Received”. That article discussed the general requirements that churches face when they receive donations. It laid the ground work and showed when the church is responsible for providing receipts and when the donor is responsible for obtaining them. It also gave an overview of the wording of the contribution statements, showed how churches should handle quid pro quo donations, and discussed the three general rules from the Internal Revenue Service (IRS) regarding churches and donations. Please refer to general reporting requirements for the full article.
This current article will focus on how churches, donors, and the IRS handle non-cash contributions given to churches.
Non-cash contributions are also known as gifts in kind. They can be anything from office supplies, computer equipment, books, stocks, real estate to automobiles. It is important to keep in mind that the church should either be able to use the donated property as a part of their operations or they should be able to easily sell the donated property and use the proceeds for church operations. If the donated property can fulfill one of the two requirements, the donor may be able to take a charitable income tax deduction on their tax return.
What about volunteers who work in the church? They are definitely necessary in the operations of the church. Should their services be reported as non-cash donations and they in turn take income tax deductions on their tax returns? Isn’t this just another form of a non-cash donation? Unfortunately, the IRS has stipulated that you can not receive a charitable income tax deduction for the value of your time or services.
Another area that needs to be further examined is the importance to distinguish between a tax deductible non-cash donation to a church and a non-tax deductible personal gift to a minister that may need to be included in his gross income. Donations of a personal nature, whether cash or non-cash, are not considered charitable contributions but rather personal gifts. They are not tax deductible and may need to be included in the gross income of the minister.
Lets take a look at some examples and see what their tax consequences may be:
- Example 1: Donor gives two cases of paper to the church
- The paper can be used in the normal operations of the church. The donor may be able to take an income tax deduction for the paper.
- Example 2: Donor gives land to the church.
- The land can be sold with the proceeds going toward the normal operations of the church. The donor may be able to take an income tax deduction for the land.
- Example 3: Donor gives a computer to the minister to work on at home. It is used by the entire family.
- The computer is deemed a personal gift to the minister. The donor can not take an income tax deduction for the computer.
- Example 4: Donor gives a computer to the church office. The minister will be the primary user of the computer. The computer will stay at the church and will be used for church work exclusively.
- The computer will be used in the normal operations of the church. The donor may be able to take an income tax deduction for the computer.
- Example 5: Donor is a volunteer who works 10 hours per month in the church office. There is one paid office staff position at the church that pays $8.00 per hour. The volunteer would like a statement from the church that shows they work 10 hours per month in order to claim an income tax deduction.
- The IRS does not allow an income tax deduction for the value of your time or services. No income tax deduction will be allowed for the volunteer.
Now that we have seen some examples of what non-cash donations are, lets take a look at the reporting requirements the church may have.
Reporting Requirements of the Church:
What reporting requirements does the church have, if any, if they receive non-cash donations?
Basically, the donor is responsible for obtaining a written receipt from the church for any single cash or non-cash contribution of $250 or more in order to claim an income tax deduction. Although the church is not required to provide a receipt, they may want to help the donor in this process since most churches rely on the generous support of their members. The church receipt should contain the following information:
- Name of the church
- Amount of cash contribution
- Description (but not the value) of non-cash contribution
- Statement that no goods or services were provided by the church in return for the contribution, if that was the case
- Description and good faith estimate of the value of goods or services, if any, that an organization provided in return for the contribution
- Statement that goods or services, if any, that the church provided in return for the contribution consisted entirely of intangible religious benefits, if that was the case.
Value of Non-Cash Donations for the Contribution Statement
The value of a non-cash donation is not recorded on the contribution statement sent to the donor. This is because the church is not responsible for determining the value of the donation in regards to the donor’s income tax return. The donor is responsible for coming up with this value. The donor will usually do this by consulting with his CPA and using the fair market value as outlined in IRS Publication 561 Determining the Value of Donated Property. Although the value is not stated on the contribution statement, a detailed description of the donated property is. (i.e. 300 shares of Microsoft stock)
Value of Non-Cash Donations for the Financial Statement
Although the value of non-cash donations are not recorded on the contribution statements, they are recorded on the financial statements of the church. This would involve an accounting entry that is not linked to the individual contribution module. The entry would be a credit to contribution revenue and the debit would depend on the nature of the donated property. For example, if paper was donated, the debit could be to office supplies expense. The dollar amount to be used should be the fair market value of the property at the date of the donation.
Benefits to the Donor of Non-Cash Donations
There are some real benefits to donors who contribute non-cash items to churches. Most of the benefits occur when they donate property that has appreciated in value. For example, lets say a donor purchased stock 10 years ago for $100 and on December 1, 2011 the stock has a fair market value of $1,000. If the donor sells the stock for $1,000, they will receive $900 in cash and will need to report a $900 long term capital gain on their tax return. (For purposes of our example, lets use a long term capital gains rate of 15% for 2011). After paying federal tax of $135 on the gain, the donor then has $765 available to donate to the church. The church would then receive a cash donation of $765 and the donor would be able to receive an income tax deduction for $765.
Now lets take a look if the donor donated the above mentioned stock to the church on December 1, 2011. The church will receive the stock and will issue a contribution statement to the donor describing the property - but not the value- received. The statement may say something like “200 shares Microsoft stock” and may list the stock numbers. The church intends to hold on to the stock for a period of 5 years. The donor has determined that the fair market value at the date of contribution is $1,000. This is the amount he will receive as an income tax deduction. Notice that the donor does not need to record or pay tax on a long term capital gain. In turn, the church decides that the fair market value of the stock on the date of contribution is $1,000. They will record this on their books as a debit to “Investments- Stock" and a credit to “Contribution Revenue” in the amount of $1,000.
What Other Forms Should I be Aware of Regarding Non-Cash Donations?
As indicated before, the church is not responsible for a lot of the reporting regarding non-cash donations, however, as a service to their members, it would be advantageous for them to be aware of some of the additional forms involved with non-cash donations.
Some of the additional forms involved with non-cash donations include:
- IRS Form 8283- If the donor values the non-cash property at more than $500, they are required to complete IRS Form 8283. If the donated property is valued over $5,000 the IRS requires it to be listed in Section B Part 1 of this form. If Section B Part 1 is completed, in order to obtain an income tax deduction, the donor will require the church to complete Section IV “Donee Acknowledgment”. Additionally, the IRS will require the donor to obtain a qualified appraisal for property listed in Section B Part 1. Please refer to IRS Form 8283 "Noncash Charitable Contributions" for more information.
- IRS Form 8282 - If the donor lists the non-cash property on Section B part 1 of Form 8283 as described above, IRS Form 8282 must be completed by the church if the church sells or disposes of the donated property within 3 years of receipt. This form needs to be completed and mailed to the IRS within 125 days after the date of sale. Please refer to IRS Form 8282 "Donee Information Return" for more information.
The above article does not apply to the donation of vehicle or boats. That topic will be addressed in a separate article.
As always, please consult your CPA because you may have tax situations that are unique. Additionally, IRS rules are subject to change.
Icon System’s looks forward to bringing this contribution series to churches and other non-profits so they understand the complex reporting regulations better. The next article in this series will deal with the receipt of stock and IRAs by churches.