As unemployment and financial insecurity become widespread during the novel coronavirus (“COVID-19”) crisis, many not-for-profit donors find themselves unable to provide monetary support to their favorite charities. Instead, organizations may receive offers of gifts in kind (“GIK”) or donated services. This article includes a brief summary about how to record and value such gifts.
Gifts take many forms
GIKs generally are pieces of tangible property or property rights that can take many forms. Examples include free or discounted use of facilities, free advertising, collections (such as artwork to display), and property (such as office furniture or medical supplies).
To record GIKs, first determine whether the item can be used to carry out the organization’s mission or sold to fund operations. In other words, does it have a value to the nonprofit? If so, it should be recorded as a donation and a related receivable once it is unconditionally pledged to your organization.
To value the gift, assess its fair value — or what the organization would pay to buy it from an unrelated third party. In many cases, it is easy to assign a fair value to property. When the gift is a collection or something that does not otherwise have a readily determinable market value, the fair value is more difficult to assign. For smaller gifts, the organization may need to rely on a good faith estimate from the donor. But if the value is more than $5,000, the donor must obtain an independent appraisal for tax purposes.
Ask questions about donations
To determine the fair value of a donated service, ask whether it meets one of the following two criteria:
First, does the service create a nonfinancial asset (in other words, a tangible asset) or enhance a nonfinancial asset that already exists? Such services are capitalized at fair value on the date of the donation.
Second, does the service require specialized skills, is it provided by someone with those skills and would the service have been purchased if it had not been donated? Such services are accounted for by recording contribution income for the fair value. The donated services are also recorded as a related expense, in the same amount, for the professional service provided.
These are just the basics. For more information about handling GIKs and donated services, contact us at email@example.com