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Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 12686
Experience:  Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
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501 (c)(3) donated goods. Donor corporation wants a letter

Customer Question

501 (c)(3) donated goods. Donor corporation wants a letter stating value. My understanding is that isn't OK and that there is specific Internal Revenue Code language instructing nonprofits to NOT value donated goods. Please cite chapter & verse with web link.
Thankyou!
Submitted: 2 years ago.
Category: Tax
Expert:  Lane replied 2 years ago.
Hi,You're absolutely right (as it relates to Non-Cash donations)"There are different rules governing non-cash donations, and the procedures required vary depending on a variety of factors. Generally speaking, to acknowledge the receipt of a gift with an estimated value of $250 or more, the charity should provide at a minimum:A description of non-cash property transferred to the charity. The charity should not attempt to value the property; that is donor's responsibility.A statement of whether charity provided any goods/ services in consideration for the gift; andIf so, a description and good faith estimate of the value of those goods/services Detailed rules for written disclosure statements are contained in Section 6115 of the Internal Revenue Code and Section 1.6115-1 of the Income Tax Regulations. The penalty rules are contained in Section 6714 of the Code. This information can be found on the IRS Web site at www.irs.gov. You may also find this helpful: http://www.irs.gov/pub/irs-pdf/p1771.pdf Let me know if you have any questions at all....Lane
Expert:  Lane replied 2 years ago.
Sorry, meant to provide this as a link: http://www.irs.gov/pub/irs-pdf/p1771.pdf
Customer: replied 2 years ago.

Lane, where may I reference your citations? I looked for the quote on IRS.gov and in the pub 1771 to no avail.

Thank you!

Expert:  Lane replied 2 years ago.
The quote itself was from here (they articlulate this well).The IRS handout - 1771 - was to help make the point that it's the taxpayer (the intended audience of that publication) that must determine, and is claiming, the value..This is something I 've known anecdotally for years. Not so sure that there's anything that specifically TELLS non-profit's NOT to state the value - it's just an inference from the law, logic, and policy, that the person/entity claiming the tax benefit, the deduction, has the responsibility of substantiating the deduuction..Let me see what I can find..BRB
Expert:  Lane replied 2 years ago.
Sorry here's that link: http://www.njnonprofits.org/giftsubs.html.More to come
Expert:  Lane replied 2 years ago.
Still looking and (I have westlaw's comprehensive tax library which includes section 501, along with all of the rest of title 26 of the U.S. code - the Internal revenue code) ... and I find nothing (and at this point do not believe thar I will) that states that the charity can not, legally, include a value on the receipt..I HAVE seen again and again, best practices, that (to pre-empt the of excess benefit transactions, private,enurement, and substantiating overstated deductions) state that the non-profit's best practice is Not to provide a value..Again, this comes from the general tax policy/piublic policy that it is the taxpayer that's claiming the benefit, and that the charity shouldn't be substantiating a benefit for the taxpayer..From here: http://www.nonprofitexpert.com/charitable-receipts-requiredyou'll see the following:As a general rule a non profit organization should NOT place a value on what isdonated, that is the responsibility of the donor, rather it should have make sure it DOES HAVE a statement of what was donated. Also, a non profit organization should NEVER state that a contribution IS deductible — contributions MAY BE deductible, based on the donor’s particular tax situation..And this scenario for the attys at nolo.com is particularly enlightening: http://www.nolo.com/legal-encyclopedia/overpromising-tax-deductions-65348.htmlOf course, if the bidding goes crazy and someone pays $10,000 for a backstage tour of your theatre, that bidder will be doing some happy itemizing of a charitable deduction next April. The donor will just need to subtract out the fair market value (FMV) of the item bid on -- which it's your nonprofit's job to estimate for them, in your auction receipts and thank-you letters. What if you don't? Ghaffari says, "It could catch up with your group someday -- most likely because one of your donors gets audited, and then shows the IRS the letter from your group as support for the claimed tax deduction
Expert:  Lane replied 2 years ago.
Hi Jeff,
After extensive research in all of the parts of Title 26 (with particular attention 26 U.S. Code § 501 and 26 U.S. Code § 170), and consulting with a colleague that advises non-profits as the primary function of his LAw practice ...
I feel safe in telling you that you WILL NOT find a rule of law, an IRS interpretation (through its publications) or administration OF the tax law, OR in case law (U.S. tax court, Federal district courts, or Supreme Court)...
... that disallows a charity from establishing a value in a letter or a receipt.
As I mentioned above, however, what yo WILL find, repeatedly, is the IRS requiring the charity to provide a good faith estimate of any quid pro quo good or service ... so THAT the taxpayer taking the charitable deduction (as a part of the ABSOLUtE REQUIREMENT THAT the TAXPAYER provide the value - or in the case of a quid pro quo good or service from the donee, the NET value - of the deduction) establish the value of the donation, NOT the 501(c)(3).
A you can see here (really just a distillation and MAYBE an update in some areas of Pub 1771):
http://www.irs.gov/Charities-&-Non-Profits/Substantiating-Charitable-Contributions
"The donee is not required to record or report this information to the IRS on behalf of a donor."
(You'll see this in the fourth paragraph from the bottom - you may simply do a search for the quote above on that page)
What the code, and the IRS in their administration of it IS completely clear about is that it is the DONOR who bears the burden of proof regarding value.
AND the service has clarified that the charity is in no way REQUIRED - as you see above - to establish ANY value, (except the value IT may have exchange in a quid pro quo arrangement).
And this follows the very same logic. The Donor has he burden of proof not the donee.
As a matter of fact, as you see all through the literature, a qualified appraisal is required for donations over $5000, and this too (again, because it's being used to substantiate a charitable deduction is required of the DONOR, not the donee.
In summary, ...
(1) No rule of law exists (or interpretation of such law by IRS) that the Donee CANNOT or MUST not establish a value.
(2) The rule here, IS, however, that the DonOR substantiate that value.
(3) IRS clarifies that the Donee is not REQUIRED to establish a value, and
(4) There are a multitude of practical reasons that the practice of a donee NOT establishing or providing a value is a BEST practice.
(Not the least of which is being pulled into an audit where a donor has over-stated the value of property donated)
Hope this helps
Lane
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