Stock and Noncash Gifts: A Guide for Small Nonprofits

What are Stock and Noncash Gifts?

Stock and noncash gifts are alternative forms of charitable donations that small nonprofits can accept from donors. These gifts can provide a flexible way for donors to support your mission while also offering tax benefits.

According to the IRS, a noncash gift is "any gift of property other than cash." This can include:

• Securities, such as stocks, bonds, and mutual funds
• Real estate, such as land or buildings
• Artwork, collectibles, and other tangible personal property
• Goods, such as clothing, household items, and equipment

Stock gifts, in particular, can be a convenient option for donors who want to support your nonprofit while also reducing their tax liability. When a donor gifts stock to your nonprofit, they can claim a charitable deduction for the fair market value of the stock on the date of the gift.

Here's a simple example of how stock gifts work:

When considering stock and noncash gifts, it's essential to understand the IRS requirements and develop a gift acceptance policy that outlines your nonprofit's procedures for accepting and valuing these types of gifts.

IRS Requirements for Stock and Noncash Gifts

The IRS has specific rules and regulations governing stock and noncash gifts to ensure transparency and compliance with tax laws.

Valuations

The IRS requires nonprofits to value stock and noncash gifts at their fair market value (FMV) on the date of the gift. The FMV is the price a willing buyer would pay for the asset in an arm's length transaction.

• Stock: The FMV of publicly traded stock is generally the mean between the high and low stock prices on the date of the gift.
• Noncash gifts: The FMV of noncash gifts, such as art or collectibles, may be determined by an independent appraiser or using a recognized pricing guide.

Disclosures

Nonprofits must disclose the value of noncash gifts to donors on the acknowledgement letter, which must be provided within 30 days of the gift.

• Stock: No disclosure is required for publicly traded stock.
• Noncash gifts: The acknowledgement letter must include the FMV of the noncash gift, as determined by the nonprofit.

Record Keeping

Nonprofits must maintain accurate records of all stock and noncash gifts, including:

• Documentation of the gift, including the date and amount
• Valuations of noncash gifts, including appraisals or pricing guides used
• Acknowledgement letters sent to donors

Checklist: Ensure you have the following documents and information:

Developing a Gift Acceptance Policy

A gift acceptance policy outlines the types of gifts accepted and the process for evaluating their value. This policy helps ensure that your nonprofit is in compliance with IRS regulations and can confidently accept and manage gifts. Key Components of a Gift Acceptance Policy:

• Types of gifts accepted (e.g. cash, securities, real estate, etc.)
• Gift evaluation process
• Acceptance criteria for gifts
• Responsibilities of staff and volunteers
• Process for handling disputed or low-value gifts

Steps to Develop a Gift Acceptance Policy:

1. Review IRS regulations and guidelines for gift acceptance policies (see IRS Publication 1771)
2. Consult with your nonprofit's board of directors and/or executive committee
3. Conduct a review of your nonprofit's current gift acceptance practices
4. Develop a draft policy based on your research and review
5. Share the draft policy with relevant stakeholders and solicit feedback
6. Revise and finalize the policy based on feedback and input
7. Approve and adopt the policy by your nonprofit's board of directors

Gift Acceptance Policy Checklist:

Accepting and Valuing Stock Gifts

Accepting stock gifts requires a structured process to ensure compliance with IRS regulations and to provide donors with accurate information about the value of their gift.

Step 1: Obtain the Donor's Information

Request the donor's name, address, and the number of shares being gifted. Ensure the donor signs a stock power or transfer instruction form, authorizing the transfer of the shares to your organization.

Step 2: Verify the Stock's Ownership

Confirm the donor's ownership of the stock through a Letter of Authorization or a Stock Power. This documentation must include the donor's name, the number of shares, and the stock's symbol.

Step 3: Determine the Stock's Value

Use a qualified appraiser, such as a registered investment advisor (RIA) or a certified public accountant (CPA), to determine the stock's fair market value. This value will be used to calculate the gift's tax deduction.

Step 4: Disclose the Value to the Donor

Provide the donor with a written acknowledgement of the gift, including the value of the stock. This acknowledgement is typically done within 30 days of receiving the gift.

Example of a Stock Gift Acknowledgement

Checklist

• Obtain the donor's information and signed stock power or transfer instruction form.
• Verify the donor's ownership of the stock through a Letter of Authorization or Stock Power.
• Use a qualified appraiser to determine the stock's fair market value.
• Disclose the value of the gift to the donor within 30 days.

Accepting and Valuing Noncash Gifts

When accepting noncash gifts, it's essential to follow a systematic process to ensure accurate valuation and compliance with IRS requirements.

Step 1: Determine the Type of Noncash Gift

Identify the type of noncash gift, such as:

• Artwork or collectibles
• Real estate or land
• Personal property, such as jewelry or antiques
• Business interests or securities
• Other tangible or intangible assets

Step 2: Engage a Qualified Appraiser (When Necessary)

For gifts valued at $5,000 or more, engage a qualified appraiser to determine the fair market value (FMV) of the gift.

Step 3: Determine the Fair Market Value (FMV)

Using the appraiser's report or other reliable sources, determine the FMV of the noncash gift.

Step 4: Document the Gift and Valuation

Keep accurate records of the gift, including:

• Donor information
• Gift description
• FMV determination
• Appraiser's report (if applicable)
• Documentation of any subsequent sales or dispositions

Store these records securely and make them available for IRS examination.

Timely Disclosure

Disclose the value of noncash gifts to donors in a timely manner, ideally within 30 days of the gift date.

Disclosing the Value of Noncash Gifts to Donors

The IRS requires small nonprofits to disclose the value of noncash gifts to donors. This is done to ensure transparency and to prevent tax evasion. The nonprofit must provide the donor with a written acknowledgement of the gift, which includes the value of the gift and the date of the gift.

Form 8283, Noncash Charitable Contributions, is used to report noncash gifts to the IRS. The nonprofit must provide the donor with a copy of the completed Form 8283, which includes the following information:

• Donor's name and address
• Description of the noncash gift
• Value of the noncash gift
• Date of the gift
• Signature of the nonprofit's representative

Accurate valuations of noncash gifts are crucial to ensure compliance with IRS regulations. The nonprofit must use one of the following methods to determine the value of the gift:

• Donor's appraisal
• Independent appraisal
• Retail price
• Wholesale price

The nonprofit must also maintain records of the noncash gifts, including the following:

• Receipts for the gift
• Appraisals or valuations of the gift
• Documentation of the gift's use or disposition

Here is a checklist to ensure compliance:

Failure to comply with IRS regulations can result in penalties and fines. Therefore, it is essential to develop a clear understanding of the requirements and to implement procedures to ensure compliance.

Best Practices for Managing Stock and Noncash Gifts

Effective management of stock and noncash gifts requires attention to detail, clear communication, and a well-organized system. Here are some best practices to help you manage these gifts efficiently.

Record-Keeping

Accurate and thorough record-keeping is essential for managing stock and noncash gifts. Consider the following steps:

• Document all gift transactions, including the date, type, and value of the gift.
• Keep a record of the donor's contact information and any communication related to the gift.
• Store physical gifts, such as artwork or equipment, in a secure and accessible location.
• Consider using a gift management software to streamline record-keeping and tracking.

Communication with Donors

Clear communication with donors is crucial for managing stock and noncash gifts. Consider the following steps:

• Send a thank-you letter or email to donors acknowledging their gift and providing information about its use.
• Keep donors informed about the status of their gift, including any plans for its use or sale.
• Be transparent about the value of the gift and any expenses associated with its management.
• Consider hosting a donor appreciation event or sending a special thank-you gift to acknowledge their support.

Gift Valuation and Disposition

Consider the following steps when valuing and disposing of stock and noncash gifts:

Review and Revision

Regularly review and revise your gift acceptance policy to ensure it remains effective and compliant with IRS requirements.

• Review your policy annually or as needed.
• Update your policy to reflect changes in IRS requirements or your organization's needs.
• Communicate changes to donors and staff.

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