Donation of Investment Securities

Ministries frequently receive contributions of investment securities. By donating stocks or bonds to a ministry, a giver is able to support the ministry, avoid paying any capital gains taxes, and receive a charitable contribution deduction.

Timing of receipting and recording contributed investments for accounting purposes. A contribution of investment securities is completed upon the unconditional delivery of a properly endorsed investment certificate to a nonprofit or its agent. If the security is mailed and is received by the ministry or its agent in the ordinary course of the mail, the gift is effective on the date of mailing.

If the giver delivers an investment certificate to the issuing corporation or to the giver’s broker for transfer to the name of the ministry, the contribution is not completed until the security is actually transferred on the corporation’s books. It is preferable for the giver to deliver the stock certificate to a broker who acts as the agent of the ministry. Under those circumstances, the contribution can be effected regardless of when the corporation records the transfer.

Valuation of contributed investments for accounting purposes. Contributed investments are recorded at the fair market value on the date they are received. If the stock or bonds are sold shortly (within a week of receipt), the contribution amount should be recorded as the total amount of the proceeds. If they are not sold within a week, donated investments should be recorded at their fair market value. When investments are not immediately sold, their future sale will result in an investment gain or loss, unless the market price remains unchanged.

  1. Publicly traded securities. The fair market value of publicly traded securities is their published market value. Therefore, contributed investments that are not sold within a week should be recorded at their published market value.

Example 1:  A giver contributes 100 shares of XYZ’s stock to ABC Ministry. The ministry immediately sells the stock upon receipt for $100 per share. The ministry will record a contribution of $10,000.

Example 2:  A giver contributes 100 shares of XYZ’s stock to ABC Ministry. The ministry decides not to sell the stock immediately. The published value of the stock on the day it was received by the ministry was $50 per share. The ministry will record a contribution of $5,000.

  1. Closely Held Stock. The fair market value for closely held stock is more difficult to determine than for publicly traded securities because it does not have an active trading market value. The IRS has outlined the following factors to consider when valuing closely held stock:
  • The nature of the business and the history of the enterprise since its inception
  • The economic outlook in general, and the condition and outlook of the specific industry in particular
  • The book value of the stock and the financial condition of the business
  • The earning capacity of the business
  • The dividend-paying capacity of the business
  • Whether or not the enterprise has goodwill or other intangible value
  • Anticipated sales of the stock in open markets or private placement and the size of the block of stock to be valued
  • Controlling interest (or lack thereof) in the company held by the shareholder
  • Potential “built-in gains” tax or other transaction costs associated with sale of the shares
  • The market price of stocks of corporations engaged in the same or a similar line of business, the stocks of which are actively traded in a free and open market, either on an exchange or in the over-the-counter market
Example 3:  A giver contributes 100 shares of closely held stock to ABC Ministry. After considering the IRS factors to determine market value, the ministry values that the stock at $100 per share. The ministry will record a contribution of $10,000.

Giver restrictions. Giver restrictions may be placed on contributed investments just as on donated cash. Therefore, donated investments are recorded as unrestricted, temporarily restricted, or permanently restricted, depending on the donor’s restriction.

Example 4:  A giver contributes 100 shares of XYZ stock to ABC Ministry with the stipulation that the proceeds be used to purchase computers for the Ministry’s job training center. The ministry immediately sells the stock upon receipt for $100 per share. The ministry will record a temporarily restricted contribution of $10,000.

Acknowledging contributed investments. When acknowledging investment donations, the gift-in-kind acknowledgment rules apply. The acknowledgment should include the amount and types of securities received as well as the date(s) they were received. Reporting the fair market value of the investments at the contribution date is the giver’s responsibility and should not be included on the acknowledgment.

 

Sample Investment Securities Charitable Gift Acknowledgment

Received from:  Jackie J. Burns                                                        Receipt No. XXX

Investments received are described as follows:

      Received on May 1, 20XX, one hundred shares of Dell stock.

      Received on May 3, 20XX, 50 shares of McDonald’s stock. 

(Note: No value is shown for the gift. 
Valuation is the responsibility of the donor.)

Any goods or services you may have received in connection with this gift were solely intangible religious benefits. (Note: It is very important for a religious organization to use wording of this nature when no goods or services were given in exchange for the gift.)

This document is necessary to qualify you for any available federal income tax deduction on your contribution. Please retain it for your records.

Acknowledgment issued on:          May 30, 20XX

Acknowledgment issued by:          Harold Morrison, Treasurer
                                                       ABC Ministry
                                                       1008 High Drive
                                                       Dover, DE 19901

 

 

 

Policy to dispose of marketable securities.  Many ministry boards have a policy requiring immediate disposal of marketable securities. A policy of this nature prevents ministries from trying to time the market when disposing of securities and assures an orderly disposition of securities.

 

 


This text is provided with the understanding that ECFA is not rendering legal, accounting, or other professional advice or service. Professional advice on specific issues should be sought from an accountant, lawyer, or other professional.

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