FROM: Jim Bramer, Retired
RE: Gifts in Kind (GIK) Acctg & Tax Issues Originated: October 1999
Below is a hypothetical Online Email thread (THRD) between any one of the following MFTeam members: PAT (Ministry Chief Executive), LEE: (Ministry Volunteer Treasurer), or FRAN: (Ministry Computer Bookkeeper) and Jim@bcidot.org
Jim, we are a Not for Profit Relief Mission Agency and it is our business to receive what is called tangible "Gifts in Kind" (GIK) and then distribute them appropriately. Obviously, these are non-cash donations and there are a number of accounting and finance issues ..... can you help me? By the way ...... please note these are "tangible" items, not donation of people's time, etc. I note that you have shared Here on that topic.
To begin with, we recently we received some stocks/ bonds that show up on these markets, and we received a vehicle plus some real estate. Any thots?
When these type of GIKs occur, please consider (1):
- Please note the following IRS link contents:
http--www.irs.gov-pub-irs-pdf-p1828.pdf - General Ministry and IRS matters
526.pdf - Charitable Contributions -- Pamphlet
544.pdf - Sale-Disposition of Assets -- Pamphlet
561.pdf - How to determine Value of donated Property -- Pamphlet
8283.pdf - Non Cash Charitable Contributions -- form instructions
8283.pdf - form itself
- In our opinion, the Ministry needs to establish a policy that it converts such stock-bond gifts immediately to cash; as the Ministry should NOT ordinarily 'play the market'; this way such a donation can pay for Ministry ongoing purpose expenses. Of course, this kind of stocks/bonds are more readily convertible to cash than real estate.
- Sometimes the donated asset (either the vehicle or the real estate) is used for Ministry purposes and would show up in Fixed Assets, or in the Land Building and Equipment (LB&E) portion of your books. Ascertain the FMV for your purposes and book them as Ministry assets and GIK donation income.(2)
CAUTION: When the donated fixed assets (equipment, vehicle or real estate) is used internally, such GIK donation income would distort the monthly operating statements. We recommend that you directly increase the LB&E Equity with such types of GIK assets. Of course, the year end report will show such increases as GIK income.
- Render an appropriate "thank you/donation receipt" letter that fully describes/identifies the donated asset, BUT, do NOT include any FMV dollar amount. The donor determines the tax deduction amount - your Ministry does not want to be a part of such possible controversy. (4)
- Include a non-cash record of this special type of donation within the Donor's giving record.
You no doubt have auctions - are you familiar with the accounting software product known as QuickBooks (TM) (QBs) ? Can you access the Internet and read or link to Internet messages, or URLs?
Exactly ...... the answer is 'yes' to all. Please discuss first with me about QBs as we are seriously considering using it. Most of our cash donations are designated by the Donor for a Board approved purpose. Can I use QBs to do this kind of bookkeeping?
Since you use the Internet, please Go Here and observe how we explain the use of QBs for Fund Accounting. Then let us know if you have questions.
OK, I have read your publication with much interest .... I want to digest this more in our setting, but it looks like it has just what we need.
Let me tell you a little about our Annual Auction. Someone recently obtained some auction software that helps us greatly in the required record keeping .... let me know if you would like more details. Suffice is to say, we have donor information that includes GIK description and an attempted value amount. What info do you have along these lines?
Thank you for making me aware that auction software is 'out there'; so very glad that you are attempting to capture description and value information within such records. You need to obtain FMV (Fair Market Value - or what a willing buyer will pay to a willing seller, with both knowing relevant facts) information. Sometimes bidders have a donative intent as they are willing to pay more than the FMV. Let me share this fact pattern:
- Your Agency receives an auction Donation item that has an appraised FMV of $250.00. The appraisal should be by a qualified appraiser -- do not simply make guesses or estimates.
- The Buyer pays $750.00 for this item.
- Your Agency needs to provide GIK donations info to such GIK Donors so they can take the appropriate tax deduction. As mentioned above, DO NOT include the FMV of $250.00 in your "thank you" letter as the Donor must deal alone with the taxing authorities as to the amount they take as a tax deduction, etc.
- Your Agency should provide the Buyer with the $250.00 FMV info since the Ministry acquired something tangible with value;
- Then the Buyer can readily determine their charitable contribution to your Agency of $500.00, or the difference between the total paid of $750.00 and the $250.00.
Obviously FMV is a variable and you have to do the best you can. in providing the information to the Donor; there are SUBJECTIVE vs OBJECTIVE aspects of all this. Obviously, FMV is no issue if your Agency purchased the item to sell, etc. Also the Ministry in some cases ends up with unsold GIK donations and it needs dollars attached to it for inventory accounting.
With all of this in mind, this is why the Auction software in so helpful as it assists us in doing most of this.. I realize that we need to reflect some of the above on our books. But I sure hate to commingle all of this non-cash stuff with our normal operational transactions. Any suggestions?
Yes, Fran, I believe there is often merit in a separate QBs GIK, or Non-Cash, please Go Here for the required management of this unique Inventory. Ask us for a QBs GIK Sample, as this would assist a Ministry in maintaining this kind of incoming and outgoing Inventory records; plus booking of applicable GIK Sales/Donation Income and GIK Cost of Sales of such GIK contributed Inventory. In many ways this set of books will serve in place of the software you mentioned above, Fran.
Very helpful, Jim. We also have fund raising banquets and people pay more for their tickets than the cost of the food. How do we handle this?
With the FMV and donations thesis above in mind ...... if I paid $50.00 for such a meal that only had a FMV of $15.00, then the Ministry has to make this clear on the $50.00 receipt that only $35.00 is tax deductible. This concept equally applies when donors receive a tangible "perk" when they make a donation in response to a fund raising appeal.
FR FRAN (3):
OK, let me ask about another dimension to these GIK issues. Say that we received a vehicle worth $5,000.00 as a GIK that we decided to give to a staff member as part of their compensation? What would our steps be?
I would book the $5,000.00 vehicle into a temporary asset account (something like SUSPENSE Clearing) and credit GIK Income. Then I would process a paycheck that would include enough cash to cover the applicable payroll taxes that will be included within their W-2 at the end of the year. The journal entry reflection of the pay check would be something like the following:
Gross Pay Expense
1st Payroll Tax Withholding
2nd Payroll Tax Withholding
3rd Payroll Tax Withholding
Net Pay Check
Most helpful -- thank you, Jim.
The bulk of this Publication originated in October 1999 and was . UPTD: March 09, 2012 Click here and go to List of threads (THRDs) at Ministry Finance Team Helps
HOME | ABOUT US | OUR PURPOSE | SITEMAP | COMPUTER FUND ACCTG | HELPS
(1) An Online Document, or WRIT (Writing), may be applicable to all Ministries, or it may be designed for just groups like: Evangelical Church, School, Missionary Agency or Organization, Christian Camp / Conference, or other named group.
(2) WRIT formats include the perspective of Jim@bcidot.org via IOMs (Inter-Office Memos) to the Ministry Finance Team (MFTeam); THRDs, a hypothetical Online conversation with members of the MFTeam; GLEANINGS, or Scripture within context of the MFTeam; FWIW; A periodic editorial (For What it is Worth); TRUISM, or believed Ministry Finance principles; plus FAQ, response to Frequently Asked Questions;