Transcript IRS Rules & Regs - MU Business Information Center

IRS Rules & Regs
Presented by:
Linda L’Hote, Associate Vice Chancellor
Campaign Administration, Advancement Services & Donor Relations
and
Wayne Chipman, Executive Director for Advancement
Office of Gift Planning & Endowments
Panel of Experts
Kyle Newell-Groshong – Lead Accountant , Accounting Services
General ledger (PeopleSoft), Government Accounting Standards Board
(GASB), University financial policies and procedures, reconciling information by
PeopleSoft/Advance
Donna Steinmetz – Sr. Fiscal Analyst, Gift & Pledge Processing Compliance
Gift Processing
Tom Boren – Director, Advancement Services
Technology & Information Support Group (TISG) and Biographical Records
Penny Blank – Director, University Donor Relations
Accounting vs. Counting
Accounting follows all regulatory rules:
University policies/procedures
Internal Revenue Service (IRS)
Government Accounting Standards Board (GASB)
Financial Accounting Standards Board (FASB)
National Association of College & University Business Officers (NACUBO)
Counting follows CASE guidelines:
Counting generally measures productivity
Special rules may be developed by institutions regarding campaign
counting, but these must also follow CASE guidelines
Scope of Current Audit
Gifts-in-Kind
Expenditures for non-endowed funds
– We have checks and balances for endowed
funds
Topics of the Day
What is a gift and what is not?
Definition of a Donor
What is a Gift-in-Kind?
Types of Gift Credit (Legal and Soft)
When is a gift complete?
Gift Acceptance
Disclaimer
Wayne and I are NOT:
– Practicing attorneys
– Tax advisors
– Giving legal advice
Our qualifications are:
– We have 37 years of combined experience working
with various compliance issues in Development
What is a Gift?
IRS defines a charitable contribution as a
donation or gift to, or for the use of, a
qualified organization. It is voluntary
and is made without getting, or expecting
to get anything of equal value.
– IRS Publication 526
What is a Qualified
Organization?
Qualified organizations – include non-profit
groups that are organized and operated only for
one or more of the following purposes
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Religious
Charitable
Educational
Scientific
Literary
The prevention of cruelty to children or animals
– IRS Publication 526 lists examples
Voluntary, etc.
Voluntary – not like an “exchange” transaction
– There must be “Donative Intent”
– Given without the expectation of receiving
something of value in return that is outside
“quid pro quo” and/or “safe harbor” rules
– There is no value attached to naming
opportunities, names on honor rolls or gift
club membership; “safe harbor” rules apply
What is not a Gift?
Gifts of services are not generally eligible for the
federal income tax charitable deduction
Gifts of time, labor or effort
Partial Interest (use of home, office space,
vehicle, condo, vacation home (not the same as
a “fractional interest” ex. Artwork)
Discounts
What is not a Gift?
Gifts to, or for the benefit of, a specific individual
(tuition payments)
Contributions in which the donor benefits
Gifts to, or for the use of fraternities, sororities
and non-qualifying student organizations
Cost of raffle tickets
Definitions of a Donor
The IRS defines a donor as someone who makes a
contribution directly to a “qualified organization” or legal
representative of that organization, or to a qualified trust
for that organization, or in a similar specifically
authorized legal arrangement.
CASE Management Reporting Standards defines donors
as those individuals or organizations that transmit a gift
or grant to a qualified institution. In cases where a
contribution passes through several entities, the last of
the entities through which it passes before being
received by the donee should be cited as the donor.
Two Tips for Determining the Donor
Ask the Questions …
Whose asset was it immediately before it was
transferred to your organization?
Who is the check writer/signer?
– Be cautious though – some parties act as an
agent for the donor
Non-Cash Gifts (Gifts-in-Kind)
What are they?
– Gifts-in-Kind are gifts of tangible or intangible
personal property (other than cash or
securities) that are deductible by the donor
under federal tax law.
The IRS uses different terminology
– They only refer to these as “Property other
than cash” (non-cash gifts)
Types of Non-Cash Gifts
Publicly Traded Securities
Closely Held Securities
Tangible Personal Property
Real Property
Intangible Personal Property
Motor Vehicles
*
Securities
Publicly Traded Securities (common stock)
– Securities for which market quotations are readily
available on an established securities market as of
the date of the contribution
Unlike many non-cash gifts, value is easy to
determine
– Average of the high and low on the day you take
possession of the asset
Securities
Closely Held Securities
– Market quotations are not readily available
– Valuation is more difficult – many times an appraisal
is needed; may want to coordinate time of gift with
annual business appraisal
– Transaction is typically more complicated/lengthy to
administer
– Marketability is a consideration in determining
whether to accept
Tangible Personal Property
The term tangible personal property refers to any
property, other than land or buildings, that can be seen
or touched
Examples include:
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Equipment
Software
Software Licenses
Printed Materials
Food
Artwork
Books
Furniture
Motor Vehicles
Motor Vehicles
Distinction now is based on intended use by
Donee
Does the University intend to significantly use or
materially improve the vehicle – OR
Does the University intend to sell the vehicle and
use the proceeds
Motor Vehicles – cont’d
Deductibility is affected for the donor
Additional responsibilities placed on donor
Specific rules regarding written
acknowledgments for motor vehicles
*
Deep Discounts or
Bargain Sales
If a company offers to sell a product (not real
estate) to the University at a “deep discount” or
“bargain sale”, the company should provide a bill
of sale clearly indicating the retail price, less the
charitable contribution of the discounted amount
and a net cost. The discounted amount can be
recorded as a gift-in-kind.
– If the same discount applies to purchases made
by the University on a regular basis and is not
uniquely identified as a special reduction to be
considered as a donation, no gift should be
counted and there is no tax deduction.
Services
The value of a person’s or organization’s
time or service is not considered a
charitable contribution and is not
countable, regardless of whether the
individual assists as a volunteer or as a
professional providing a specialized
service.
Services
If services are not recognized by the IRS as a
contribution, why are you asked to provide us
documentation?
– Because of non-IRS regulations that require
feeding certain service donations into the
general ledger (PeopleSoft).
Software, Hardware, and
Maintenance Agreements
Irrevocable gifts of software or hardware with an
established retail value are treated like other
gifts-in-kind and counted at the educational
discount value or the fair market value, as long
as the agreement qualifies as a charitable
donation under the laws of the appropriate tax
authority.
Software, Hardware, and
Maintenance Agreements
Maintenance agreements are considered
contributed services and are not to be counted
unless the agreement between the University
and the donor includes free upgrades that have
a higher established retail value. In that case,
the difference between the original retail value
and the new retail value is countable as an
additional gift.
Software, Hardware, and
Maintenance Agreements
To be considered a gift, the donor must
irrevocably transfer ownership of the property to
the institution. There must be no implicit or
explicit statement of exchange, purchase of
services, or provision of exclusive information.
Software, Hardware, and
Maintenance Agreements
Large software donations can be highly
complex. Should you encounter one of these
gifts, please contact me directly for assistance.
Partial Interest in Property
Donors cannot deduct a charitable contribution
of less than their entire interest in the property.
Therefore a partial interest would not be a gift,
unless it falls within certain limited exceptions
(for example, some charitable annuities).
A contribution of a right to use property is a
contribution of less than the entire interest in that
property and is not a gift.
Partial Interest (cont’d)
Mary owns a 10-story office building and donates rent
free the use of the top floor to the University. Since Mary
still owns the building, she has contributed a partial
interest in the property and cannot take a deduction for
the contribution.
Mandy owns a vacation home at the beach that she
sometimes rents to others. For a fundraising auction she
donated the right to use the vacation home for 1 week.
At the auction, the University received a bid from Lauren
equal to the fair rental value of the home for 1 week.
Mandy cannot claim a deduction because of the partial
interest rule. Lauren cannot claim a deduction either,
because she received a benefit equal to the amount of
her payment.
Intangible Personal Property
Defined:
– Property that has a value but cannot be seen
or touched (IRS Pub. 526)
Examples include:
– Patents and copyright
– Intellectual property
Intellectual Property
Considered intangible personal property, but a special
case:
– Concern about the difficulty of determining the value
of the contribution
– Often the donor’s deduction was much greater than
the benefit we realized
A donor’s deduction is limited to the basis of the property
or the fair market value of the property, whichever is
less.
There are “caps” on intellectual property; lesser of actual
cost to produce or $1million
Real Property
Real Property
– Real property is land and generally anything
that is built on, growing on or attached to the
land (IRS Pub. 526)
– Real property includes both improved and
unimproved real estate
Auctions
A donor contributing an item to be used in a
charity auction is eligible for a tax deduction
related to the item donated. Provide donor with
a Gift-in-Kind receipt
Items purchased at auction:
– Only the amount, if any, in excess of the fair
market value of an item purchased can be
considered a charitable contribution.
GIK – Keep “use” in mind
Contributed property must benefit the University
by either:
– Related use – related to the purpose or function
constituting the basis of the University’s exemption.
Example – A painting donated to a University and used for
educational purposes when students study it
– Unrelated use – unrelated to the purpose or function
constituting the basis of the University’s exemption.
Example – A case of wine given to the University to sell at a
fundraising auction
Non-Cash Gifts
Forms 8283 and 8282
Form 8283 – Non-cash Charitable
Contributions
– Donors use Form 8283 to report information
about non-cash contributions
Form 8282 – Donee Information Return
– Organizations use Form 8282 to report
information to the IRS about dispositions of
certain charitable deduction property which
occurs within 3 years after contribution
Form 8283
Section A:
– For deductions of $5,000 or less
– Also for deductions of publicly traded
securities, regardless of amount
– Section A is completed entirely by the donor
The University does NOT need to be involved
with Form 8283 for gifts listed in Section A
Gift Processing sends 8283’s as a courtesy for
all Gifts-in-Kind, except for Athletics
Form 8283
Must Be Completed
– For deductions of more than $5,000, except
for deduction of publicly traded securities
– Section B has four parts.
Only Part IV, Donee Acknowledgement, is
completed by the University.
Form 8283
What we DO NOT certify:
– The Appraisal (Value/Legitimacy)
Form 8282
Identifies the charitable organization, the original
donor and donee (any intermediate donees)
Provides information about the property
– Description, date received, date sold or
disposed of, amount received upon
disposition
The University must file if the property is sold
before the required 3 years.
Donor Responsibilities –
IRS Forms
Determine whether appropriate to file Form 8283
Complete donor sections
Present form to University for signature
Obtain qualified appraisal if needed
File the form with tax return
University Responsibilities –
IRS Forms
Verify information
Complete and Sign
Return to Donor
File Form 8282 if property is disposed of within 3
years after issuing receipt
Receipting Non-Cash Gifts
Donor receipt should not state a value –
only a description of the asset
– It is the responsibility of the donor to
determine value for tax purposes
Policies & Procedures for
Gifts-in-Kind
No one in the MU community may sign any IRS
or other forms that are related to the acceptance
of gifts.
Questions on IRS 8283 should first be directed
to Donna Steinmetz.
Gift Planning should be consulted early in the
process of obtaining a vehicle.
Types of Gift Credit
Hard Credit is given to whoever made the
contribution
Soft Credit (or recognition credit) is primarily for
recognition purposes
– Can give to as many as you wish as long as
the total soft credit does not exceed the gift
amount.
When is a Gift Complete?
In general, a gift is complete when the donor has
relinquished control of the asset to the University
Checks:
– Can give hard credit to one person or split
Credit Cards
– IRS Rules are firm about gift date
– Important to educate donor
Important for you to understand the impact of gift
date for your donors
Written Acknowledgments/
Tax Receipts
Required for all contributions of $250 or more (except for quid pro
quo)
Donor is responsible for obtaining
Substantiation to donor must be contemporaneous (that is, in time
for tax filing)
New vehicle rules require receipt within 30 days of gift (if retaining)
or 30 days from date of sale
Year-end receipts will not be given this year and in years to follow as
a cost-saving measure
Donor may make a special request to receive a year-end summary
Written Acknowledgments
What must they include:
– The name of the organization
– The amount of a cash contribution or for noncash gifts, a description of the property (NOT
a value)
– A statement that no goods or services were
provided by the organization, or a description
and good faith estimate of the value of the
goods and services (quid pro quo)
Written Acknowledgments
Special rules apply for donated vehicles sold at
$500 or less
Generally, if the charity sells the vehicle, the
donor deduction is limited to the gross proceeds
received by the organization from the sale.
Written Disclosure &
Quid Pro Quo
A contribution made by a donor in exchange for goods or
services is known as a Quid pro quo contribution.
In these situations the disclosure must inform donor that
the tax-deductible amount is limited to the excess of the
amount contributed over the value of goods or services
provided.
Disclosure must also provide donor with a good-faith
estimate of the value of such goods or services.
“Safe Harbor” Rules
Quid Pro Quo receipts are not required when:
Fair market value of all benefits received in connection
with the payment does not exceed the lesser of 2% of
the gift amount or $89
OR
Gift is $44.50 or more and the cost of all benefits given
does not exceed the IRS “low-cost articles” minimum of
$9.10
AND
The only benefit the donor received consisted of token
items bearing the University’s name or logo.
“Safe Harbor” Information
The “Safe Harbor” Rules change annually.
They are published in the last IRB of each
year (Internal Revenue Bulletin)
Example
If a donor gives a charity $100 and receives a concert
ticket valued at $40, the donor has made a quid pro quo
contribution
In this example the charitable contribution part of the
payment is $60
Even though the deduction is less than $75, a disclosure
statement must be sent because the donor’s payment
(quid pro quo contribution) is more than $75
If a receipt is sent for payment under $75, it must show
quid pro quo information. Also, remember, solicitation
material must always mention quid pro quo.
Unreimbursed Expenses
Out-of-pocket expenses incurred while providing
volunteer services are deductible under certain
circumstances (ex. Transportation)
Donor cannot deduct a single contribution of
$250 or more without a written acknowledgment
Whose Rules Do You Follow?
Internal Revenue Service (IRS)
Government Accounting Standards Board (GASB),
Financial Accounting Standards Board (FASB) &
National Association of College & University Business
Officers (NACUBO)
Council for Advancement and Support of Education
(CASE)
University Policy
Donor’s Wishes
Whose Rules Do You Follow?
Answer:
– All but the donor’s wishes, but their “wishes”
should be addressed
Gift Acceptance
Why You Might Not
Want to Accept
If the gift does not support the mission of your organization
If the gift requires the University to do something it otherwise would
not do
If the gift requires the University to do something in perpetuity
If the gift requires you to accept restrictions or obligations that are
not in the best interest of your organization
If the gift comes with encumbrances such as debt, liability for toxic
clean-up, etc.
If the gift costs more to accept than it is worth
If the gift would be bad for community relations
Should We Accept This, and
What if We Don’t?
Whether or not you ultimately accept a gift or
not, be aware of possible issues
Donor relations issues
Internal political issues
Public relations issues
Ethical issues
Counting issues
Gift Acceptance –
Who Decides?
President
Treasurer
General Counsel
Chancellor
Vice Chancellor for Development
Vice Chancellor for Administration
Associate Vice Chancellor for Campaign
Administration, Donor Relations & Advancement
Services
References
Determining the Value of Donated Property –
IRS Pub. 561
http://www.irs.gov/pub/irs-pdf/p561.pdf
Charitable Contributions – IRS Pub. 526
http://www.irs.gov/pub/irs-pdf/p526.pdf
Charitable Contribution – IRS Pub. 1771
http://www.irs.gov/pub/irs-pdf/p1771.pdf
Updates on Disclosure and Substantiation Rules
http://www.irs.ustreas.gov/pub/irs-tege/topic-g.pdf
Time for a Review…
What if …
Mr. Smith donates the use of an apartment to
the University to house a visiting professor for
the term (10 months). The rental cost of the
apartment is $1,000 per month. Gift or No Gift?
No Gift; soft credit
How do you acknowledge?
Thank-you letter
What if …
Mrs. Tisdale wants to write a check for $10,000
to support a student from out-of-state who has
need. She wants to pick the student. Gift or No
Gift?
No Gift; soft credit
What if …
Mr. Jones donates two tickets for a musical
concert to a gala auction valued at $100. The
winning bidder pays $150. Gift or No Gift?
Gift; hard credit
How do you acknowledge?
$100 donation for Jones; $50 donation to bidder
What if …
Mr. Jones donates the use of his condo in
Florida for one week to the gala auction valued
at $2,000. The winning bid pays $1,500. Gift or
No Gift?
No Gift; soft credit
How do you acknowledge?
Thank-you letter to donor only
What if …
Golf Cars USA donates the use of Golf Cars for
athletic events. The donor valued the service at
$2,500. Gift or No Gift?
No Gift; soft credit
How do you acknowledge?
Thank-you letter
What if …
Xerox allowed the school use of printers and
copiers valued at $26,500? Gift or No Gift?
No Gift; soft credit
How do you acknowledge?
Thank-you letter
What if …
The Holiday Inn donated hotel rooms for Athletic
Department usage valued at $2,000.00. Gift or
No Gift?
Gift (to be determined due to special IRS
regulations)
What if …
A company donated signs, banners and posters
for University usage valued at $5,000. Gift or No
Gift?
Gift; hard credit
How do you acknowledge?
Tax receipt
What if …
A company provided one billboard for a year for
University usage valued at $12,000. Gift or no
gift?
Gift; hard and soft credit
What if …
The University purchases a large piece of
equipment for $68,500. The fair market value of
the equipment is $73,500. The University
negotiated the one-time discount. Gift or no gift?
Gift ($5,000); hard credit
What if …
That same company also donates a special part
that does not come standard with the equipment
valued at $5,000, several additional parts to
make the equipment operational valued at
$10,000 and they send someone from California
to install the equipment valued at $5,000. Gift or
no gift?
Gift - $15,000 hard credit. $5,000 for installation
is not a gift (services)
Who is the Donor?
Who would you record as the legal donor in the
following situation: Check received from John
Doe, MD, Inc. Does John Doe, the person or
John Doe, MD Inc., the business receive the
hard credit?
Hard credit to John Doe, MD, Inc., with soft
credit to John Doe personally
Who is the Donor?
Who would you record as the legal donor in the
following situation? Check received from
Schwab Charitable Gift, indicating that we
should send an acknowledgment to Jane Smith.
Who gets the hard credit: Jane Smith or the
Charitable Gift Fund?
It Depends! Donor Advised Fund vs. Donor
Directed Fund
Donor Advised Fund (charitable gift fund); no
hard credit. Donor Directed Fund; hard credit
Questions?