Commentary on ECFA Standard 7.10

Determining the fair market value and deductibility of a gift-in-kind. The donee organization is not a qualified appraiser and generally should not assume the legal and tax responsibilities for determining the amount the donor uses to substantiate a tax deduction. The donor makes the “giving” decisions: how much to give, what to give, and when to give. As the donor can rely on the receipt to substantiate a tax deduction, the organization must avoid any risk of giving or agreeing to an inflated value; nor would it be in the interest of the donor to state a value lower than market price.

Different rules apply for gifts of ordinary income and capital gain property, publicly traded securities and other kinds of property, and for one or more gifts of the same kind of property with an estimated value of more than $500 or less than $500. A donee organization best serves its donors by urging them to contact their professional advisors and qualified appraisers in determining the gift-in-kind amount that is deductible for income tax purposes.

Gift-in-kind acknowledgment rules relating to contributions of motor vehicles, boats, and airplanes are different than the general gift-in-kind acknowledgment guidance (see later discussion).

Donee acknowledgment of gifts-in-kind. The form of the acknowledgement depends on the type of property donated.

1.  Other than motor vehicles, boats and airplanes. For gifts-in-kind other than for motor vehicles, boats, and airplanes, the donee organization should document (IRS Reg. 1.170A–13[b][a]):

• The date of the gift. The “date of gift” is the date the donor relinquishes all rights and control.
  
  For securities, this will be the date the donor mailed or hand-delivered the securities to the charity or its agent. If neither of the above applies, the “date of gift” will mean the date the securities are transferred to the charity on the books of the issuing corporation.
  
  For real estate or other property conveyed by deed or other instrument, the date is generally the date a properly executed deed is mailed or delivered to the charity. For tangible personal property with a stable value, such as works of art, jewelry, furnishings, and equipment, the date the charity receives the property is satisfactory, except for year-end gifts.
  
  The date of gift is very important for two reasons: (1) to show the year the donor made the gift; and (2) to enable the donor to claim the appropriate deduction if the value of the property is subject to day-to-day fluctuation.
• The characteristics of the gift that indicate the property’s value. This might include quantity, brand name and model, serial or identification numbers, approximate age, size (number of carats, for example), and general condition.
  
  A donee organization is required to report the sale or disposition, if the gift was appraised property reported on Form 8283, Section B and the organization disposed of it within two years after receiving it. The report is to be made within 125 days of sale or disposition.
  
  To assist the donor, it is appropriate for the donee organization to advise the donor of reporting requirements, such as how to obtain an appraisal if one is required and the importance of including a copy of Form 8283.

2.  Motor vehicles, boats, and airplanes. The following rules apply:

• Vehicle is not sold before use or improvement.  If the donated car, boat, or airplane is sold before significant intervening use or material improvement of the vehicle by the organization, the gross proceeds received by the donee organization from the sale of the vehicle will be included on the written acknowledgment and reported to the Internal Revenue Service on Form 1098-C. Therefore, for donated vehicles sold before significant use or material improvement, the deductible amount is the gross proceeds received from the sale.
  
  To meet the significant use test, an organization must actually use the vehicle to substantially further the organization’s regularly conducted activities and the use must be significant. Whether a use is considered significant depends on the frequency and duration of use. 
  
  Material improvement includes major repairs to a vehicle, or other improvements to the vehicle that improve the condition of the vehicle in a manner that significantly increases the vehicle’s value. Activities that are not considered a material improvement include cleaning the vehicle, minor repairs, and routine maintenance.
  
  For vehicles sold before use or improvement, a written acknowledgment is considered contemporaneous if the donee organization provides it within 30 days of the sale of the vehicle. The written acknowledgment provided by the charity should include the following information:
  • The name and taxpayer identification number of the donor
  • The vehicle identification number or similar number
  • Certification that the vehicle was sold in an arm’s length transaction between unrelated parties
  • The gross proceeds from the sale, and
  • A statement that the deductible amount may not exceed the amount of such gross proceed

The deductible amount for contributed vehicles that will be used or improved by the charity is the private-party sale price, as published in various price guides, as determined by the donor, not the higher dealer retail price.

• Vehicle is sold (or gratuitously transferred) to needy individuals. For vehicles sold at a price significantly below fair market value (or gratuitously transferred) to needy individuals in direct furtherance of the donee organization’s charitable purpose, the gift acknowledgment must contain a certification that the donee organization will sell the qualified vehicle to a needy individual at a price significantly below fair market value (or, if applicable, that the donee organization gratuitously will transfer the qualified vehicle to a needy individual) and that the sale (or transfer) will be in the direct furtherance of the donee organization’s charitable purpose of relieving the poor and distressed or the underprivileged who are in need of a means of transportation.

1. Securities. Publicly traded securities are reported on Section A of Form 8283. Closely held stock valued at less than $5,000 is reported in the same way. Closely held stock with a value over $5,000 is reported on Section B of Form 8283; a qualified appraisal is required if the value is more than $10,000.
2. Other noncash gifts. If the donor’s other noncash gifts total more than $500 in a tax year, Form 8283 is to be filed with Form 1040. Gifts valued at less than $5,000 are reported on Section A. If the donor gave one or more items of similar property with a total value of $5,000 or more, a qualified appraisal is required and Section B (including the charity’s acknowledgment) is to be completed. Similar items of property are those of the same generic type; e.g., stamps, coins, lithographs, paintings, non-publicly traded stock, land, and buildings. For example, if the donor gives lithographs worth $1,000 each to six organizations, a qualified appraisal is required. Contributions of motor vehicles, boats, and airplanes may require an appraisal in certain situations. 
   
   The IRS will not allow a deduction for property gifts valued at more than $5,000, unless a qualified appraiser signs the appraisal summary.