IRS Rules Regs3(1)

7/31/2019 IRS Rules Regs3(1)

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IRS Rules & Regs

Presented by:

Linda LHote, Associate Vice ChancellorCampaign Administration, Advancement Services & Donor Relations

and

Wayne Chipman, Executive Director for AdvancementOffice of Gift Planning & Endowments


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Panel of ExpertsKyle Newell-Groshong Lead Accountant , Accounting Services

General ledger (PeopleSoft), Government Accounting Standards Board(GASB), University financial policies and procedures, reconciling information byPeopleSoft/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


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Accounting vs. CountingAccountingfollows 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)

Countingfollows CASE guidelines:

Counting generally measures productivitySpecial rules may be developed by institutions regarding campaigncounting, but these must also follow CASE guidelines


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Scope of Current Audit

Gifts-in-Kind

Expenditures for non-endowed funds We have checks and balances for endowed

funds


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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


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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


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What is a Gift?

IRS defines a charitable contribution as a

donation or gift to, or for the use of, aqualified organization. It is voluntaryand is made without getting, or expectingto get anything of equal value.

IRS Publication 526


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What is a QualifiedOrganization?

Qualified organizations include non-profitgroups that are organized and operated only forone or more of the following purposes Religious Charitable Educational Scientific Literary

The prevention of cruelty to children or animals

IRS Publication 526 lists examples


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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 outsidequid pro quo and/or safe harbor rules

There is no value attached to naming

opportunities, names on honor rolls or giftclub membership; safe harbor rules apply


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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 asa fractional interest ex. Artwork)

Discounts


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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, sororitiesand non-qualifying student organizations

Cost of raffle tickets


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Non-Cash Gifts (Gifts-in-Kind)

What are they?

Gifts-in-Kind are gifts of tangible or intangiblepersonal property (other than cash orsecurities) that are deductible by the donor

under federal tax law.

The IRS uses different terminology

They only refer to these as Property otherthan cash (non-cash gifts)


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Types of Non-Cash Gifts

Publicly Traded Securities

Closely Held Securities

Tangible Personal Property

Real Property

Intangible Personal Property

Motor Vehicles


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*

Securities

Publicly Traded Securities (common stock)

Securities for which market quotations are readilyavailable on an established securities market as ofthe date of the contribution

Unlike many non-cash gifts, value is easy todetermine

Average of the high and low on the day you takepossession of the asset


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SecuritiesClosely Held Securities

Market quotations are not readily available

Valuation is more difficult many times an appraisalis needed; may want to coordinate time of gift withannual business appraisal

Transaction is typically more complicated/lengthy toadminister

Marketability is a consideration in determiningwhether to accept


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Tangible Personal PropertyThe term tangible personal property refers to anyproperty, other than land or buildings, that can be seen

or touched

Examples include: Equipment

Software Software Licenses Printed Materials Food

Artwork Books Furniture Motor Vehicles


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Motor Vehicles

Distinction now is based on intended use byDonee

Does the University intend to significantly use ormaterially improve the vehicle OR

Does the University intend to sell the vehicle and

use the proceeds


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Deep Discounts orBargain Sales

If a company offers to sell a product (not realestate) to the University at a deep discount orbargain sale, the company should provide a billof sale clearly indicating the retail price, less the

charitable contribution of the discounted amountand a net cost. The discounted amount can berecorded as a gift-in-kind.

If the same discount applies to purchases madeby the University on a regular basis and is notuniquely identified as a special reduction to beconsidered as a donation, no gift should becounted and there is no tax deduction.


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Services

The value of a persons or organizationstime or service is not considered acharitable contribution and is not

countable, regardless of whether theindividual assists as a volunteer or as aprofessional providing a specialized

service.


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Software, Hardware, andMaintenance Agreements

Irrevocable gifts of software or hardware with anestablished retail value are treated like other

gifts-in-kind and counted at the educationaldiscount value or the fair market value, as longas the agreement qualifies as a charitabledonation under the laws of the appropriate taxauthority.


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Maintenance agreements are consideredcontributed services and are not to be countedunless the agreement between the University

and the donor includes free upgrades that havea higher established retail value. In that case,the difference between the original retail value

and the new retail value is countable as anadditional gift.


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To be considered a gift, the donor mustirrevocably transfer ownership of the property to

the institution. There must be no implicit orexplicit statement of exchange, purchase ofservices, or provision of exclusive information.


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Large software donations can be highlycomplex. Should you encounter one of thesegifts, please contact me directly for assistance.


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Partial Interest in PropertyDonors 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 acontribution of less than the entire interest in thatproperty and is not a gift.


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Partial Interest (contd)Mary owns a 10-story office building and donates rentfree the use of the top floor to the University. Since Mary

still owns the building, she has contributed a partialinterest in the property and cannot take a deduction forthe contribution.

Mandy owns a vacation home at the beach that she

sometimes rents to others. For a fundraising auction shedonated the right to use the vacation home for 1 week.At the auction, the University received a bid from Laurenequal to the fair rental value of the home for 1 week.

Mandy cannot claim a deduction because of the partialinterest rule. Lauren cannot claim a deduction either,because she received a benefit equal to the amount ofher payment.


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Intangible Personal PropertyDefined:

Property that has a value but cannot be seenor touched (IRS Pub. 526)

Examples include:

Patents and copyright

Intellectual property


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Intellectual PropertyConsidered intangible personal property, but a specialcase:

Concern about the difficulty of determining the valueof the contribution

Often the donors deduction was much greater than

the benefit we realizedA donors deduction is limited to the basis of the propertyor the fair market value of the property, whichever isless.

There are caps on intellectual property; lesser of actualcost to produce or $1million


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Real PropertyReal Property

Real property is land and generally anythingthat is built on, growing on or attached to theland (IRS Pub. 526)

Real property includes both improved and

unimproved real estate


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AuctionsA donor contributing an item to be used in a

charity auction is eligible for a tax deductionrelated to the item donated. Provide donor witha 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 beconsidered a charitable contribution.


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GIK Keep use in mindContributed property must benefit the University

by either: Related use related to the purpose or function

constituting the basis of the Universitys exemption.

Example A painting donated to a University and used foreducational purposes when students study it

Unrelated use unrelated to the purpose or function

constituting the basis of the Universitys exemption.Example A case of wine given to the University to sell at a

fundraising auction


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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 reportinformation to the IRS about dispositions ofcertain charitable deduction property whichoccurs within 3 years after contribution


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Form 8283Section 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 donorThe University does NOT need to be involvedwith Form 8283 for gifts listed in Section A

Gift Processing sends 8283s as a courtesy forall Gifts-in-Kind, except for Athletics


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Form 8283

What we DO NOT certify:

The Appraisal (Value/Legitimacy)


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Form 8282Identifies the charitable organization, the original

donor and donee (any intermediate donees)

Provides information about the property

Description, date received, date sold ordisposed of, amount received upondisposition

The University must file if the property is soldbefore the required 3 years.


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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


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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


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Receipting Non-Cash Gifts

Donor receipt should not state a value only a description of the asset

It is the responsibility of the donor todetermine value for tax purposes

P li i & P d f


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Policies & Procedures for

Gifts-in-Kind

No one in the MU community may sign any IRS

or other forms that are related to the acceptanceof gifts.

Questions on IRS 8283 should first be directedto Donna Steinmetz.

Gift Planning should be consulted early in theprocess of obtaining a vehicle.


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Types of Gift Credit

Hard Credit is given to whoever made thecontribution

Soft Credit (or recognition credit) is primarily for

recognition purposes

Can give to as many as you wish as long asthe total soft credit does not exceed the gift

amount.


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When is a Gift Complete?In general, a gift is complete when the donor hasrelinquished 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 giftdate for your donors

W itt A k l d t /


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Written Acknowledgments/

Tax ReceiptsRequired 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 timefor 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 asa cost-saving measure

Donor may make a special request to receive a year-end summary


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Written AcknowledgmentsWhat must they include:

The name of the organization

The amount of a cash contribution or for non-cash gifts, a description of the property (NOT

a value)

A statement that no goods or services were

provided by the organization, or a descriptionand good faith estimate of the value of thegoods and services (quid pro quo)


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Written Disclosure &


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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 thatthe tax-deductible amount is limited to the excess of the

amount contributed over the value of goods or servicesprovided.

Disclosure must also provide donor with a good-faithestimate of the value of such goods or services.


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ExampleIf a donor gives a charity $100 and receives a concertticket valued at $40, the donor has made a quid pro quo

contribution

In this example the charitable contribution part of thepayment is $60

Even though the deduction is less than $75, a disclosurestatement must be sent because the donors payment(quid pro quo contribution) is more than $75

If a receipt is sent for payment under $75, it must showquid pro quo information. Also, remember, solicitationmaterial must always mention quid pro quo.


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Unreimbursed Expenses

Out-of-pocket expenses incurred while providingvolunteer services are deductible under certaincircumstances (ex. Transportation)

Donor cannot deduct a single contribution of$250 or more without a written acknowledgment


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Whose Rules Do You Follow?Internal Revenue Service (IRS)

Government Accounting Standards Board (GASB),Financial Accounting Standards Board (FASB) &National Association of College & University BusinessOfficers (NACUBO)

Council for Advancement and Support of Education(CASE)

University PolicyDonors Wishes


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Whose Rules Do You Follow?

Answer:

All but the donors wishes, but their wishes

should be addressed


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Gift Acceptance

Why You Might Not


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Why You Might Not

Want to AcceptIf the gift does not support the mission of your organization

If the gift requires the University to do something it otherwise wouldnot do

If the gift requires the University to do something in perpetuity

If the gift requires you to accept restrictions or obligations that arenot in the best interest of your organization

If the gift comes with encumbrances such as debt, liability for toxicclean-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


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Should We Accept This, and

What if We Dont?

Whether or not you ultimately accept a gift ornot, be aware of possible issues

Donor relations issues

Internal political issuesPublic relations issues

Ethical issues

Counting issues

Gift Acceptance


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Gift Acceptance

Who Decides?

President

Treasurer

General Counsel

Chancellor

Vice Chancellor for Development

Vice Chancellor for Administration

Associate Vice Chancellor for CampaignAdministration, Donor Relations & AdvancementServices


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ReferencesDetermining the Value of Donated Property IRS Pub. 561

http://www.irs.gov/pub/irs-pdf/p561.pdf

Charitable Contributions IRS Pub. 526


Charitable Contribution IRS Pub. 1771


Updates on Disclosure and Substantiation Ruleshttp://www.irs.ustreas.gov/pub/irs-tege/topic-g.pdf


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What if Mr. Smith donates the use of an apartment to

the University to house a visiting professor forthe term (10 months). The rental cost of theapartment is $1,000 per month. Gift or No Gift?

No Gift; soft creditHow do you acknowledge?

Thank-you letter


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What if Mrs. Tisdale wants to write a check for $10,000

to support a student from out-of-state who hasneed. She wants to pick the student. Gift or NoGift?

No Gift; soft credit


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What if Mr. Jones donates two tickets for a musical

concert to a gala auction valued at $100. Thewinning bidder pays $150. Gift or No Gift?

Gift; hard credit

How do you acknowledge?

$100 donation for Jones; $50 donation to bidder


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What if Mr. Jones donates the use of his condo in

Florida for one week to the gala auction valuedat $2,000. The winning bid pays $1,500. Gift orNo Gift?

No Gift; soft creditHow do you acknowledge?

Thank-you letter to donor only


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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?


How do you acknowledge?Thank-you letter


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What if Xerox allowed the school use of printers andcopiers valued at $26,500? Gift or No Gift?


How do you acknowledge?

Thank-you letter


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What if The Holiday Inn donated hotel rooms for AthleticDepartment usage valued at $2,000.00. Gift orNo Gift?

Gift (to be determined due to special IRSregulations)


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What if A company donated signs, banners and postersfor University usage valued at $5,000. Gift or NoGift?

Gift; hard credit

How do you acknowledge?Tax receipt


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What if A company provided one billboard for a year forUniversity usage valued at $12,000. Gift or nogift?

Gift; hard and soft credit


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What if The University purchases a large piece ofequipment for $68,500. The fair market value ofthe equipment is $73,500. The Universitynegotiated the one-time discount. Gift or no gift?

Gift ($5,000); hard credit


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What if That same company also donates a special partthat does not come standard with the equipmentvalued at $5,000, several additional parts tomake the equipment operational valued at$10,000 and they send someone from California

to install the equipment valued at $5,000. Gift orno gift?

Gift - $15,000 hard credit. $5,000 for installation

is not a gift (services)


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Who is the Donor?Who would you record as the legal donor in thefollowing situation: Check received from JohnDoe, MD, Inc. Does John Doe, the person orJohn Doe, MD Inc., the business receive thehard credit?

Hard credit to John Doe, MD, Inc., with softcredit to John Doe personally


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Who is the Donor?Who would you record as the legal donor in thefollowing situation? Check received from

Schwab Charitable Gift, indicating that weshould send an acknowledgment to Jane Smith.Who gets the hard credit: Jane Smith or the

Charitable Gift Fund?It Depends! Donor Advised Fund vs. DonorDirected Fund

Donor Advised Fund (charitable gift fund); nohard credit. Donor Directed Fund; hard credit


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Questions?

Documents

IRS Rules Regs3(1)