One of the most frequent questions I receive from clients surrounds recording and tracking of in-kind and non-cash donations. Non-cash donations fall under two main categories: goods/property and services. The treatment is different for each, both from a financial reporting and tax perspective. While the generally accepted accounting principle (GAAP) treatment for these items can get tricky, there are a few things to keep in mind that can help to simplify the process.
Donated goods, long-lived property, use of property, securities (or promises to give any of those items in the future) are recorded at the fair value on the date of donation. The organization should record the fair value of the donated assets as increases in unrestricted net assets, with a few exceptions. If a donor places a restriction on how long a long-lived asset (i.e. property and equipment) is to be used, then it should be recorded as temporarily restricted net assets, and released to unrestricted net asset over time, as the restriction expires. Also, an organization may adopt a policy to imply a time restriction for the use of long-lived assets. If so adopted, the organization would record donations of long-lived assets to temporarily restricted net assets, and release to unrestricted over the useful life (along with depreciation).
If an organization received a donation of the use of a long-lived asset (i.e. donated rent), the donation should be recorded at fair value as unrestricted revenue in the period in which it was received, along with the corresponding related expense (i.e. rent expense). If the donation is a promise to give the use in future periods for a specified period of time, the promise should be recorded as a temporarily restricted contribution receivable, and released over time as the benefit is used.
The nature of many non-profit organizations is to utilize the manpower and skills of many volunteers. GAAP sets forth specific criteria that must be met in order to recognize a contribution. The requirements are: 1) services that create or enhance a non-financial asset (i.e. property and equipment) or 2) meet all of the following:
If the donated service meets the definition set forth above, the donation should be recognized at fair value on the date of the donation as an increase to unrestricted net assets, with an offsetting recognition of an asset or the related expense.
Organizations often receive gifts from donors to be used in auctions at fundraising events. These items should be recognized as an asset at fair value on the date of donation. Any difference between the fair value and the amount received from the “sale” of these items at auction should be an adjustment to contribution revenue.
The IRS sets the specific compliance rules for charities regarding acknowledgments to donors. See previous blog post on Written Acknowledgements for Donors.
The IRS has many complex rules relating to various types of donations, such as artwork, antiques, collection items, cars, boats, aircraft, intellectual property and many more. See Publication 561 for more detailed information.