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September 6, 2020

In-Kind Donations: How Not-for-Profits Should Treat Non-Cash Contributions

Not-for-profit organizations love cash contributions, but donors may also want to contribute a variety of non-cash items including food, clothing, supplies, long-lived assets and items used for fund-raising purposes, services, utilities or the use facilities and much more. How does a not-for-profit handle all of these items?

Implementing a Gift Acceptance Policy

Organizations should consider implementing or updating their gift acceptance policy. The National Council on Nonprofits has wonderful resources and sample policies to help you get started. This will prevent you from being stuck with a well-intentioned, but costly-to-maintain and hard-to-sell gift, such as a track of land in another state.

Once the organization has set the tone for what it will and will not accept, the next step is to understand the accounting and recordkeeping rules for recording and managing in-kind donations. These rules vary depending on the type of donation.

In-kind gifts of inventory and general supplies/materials should be recorded at fair market value. The good news is that the accounting rules understand that it’s often difficult to determine fair value, so they allow organizations to use estimates, averages, or computational approximations, such as average value per pound, provided they are reasonable and applied consistently. Gifts that cannot be used internally or sold have no value and should not be recognized as contributions.

Long-lived or Capital Assets

For gifts of long-lived or capital assets such as property and equipment, organizations must consider if there are any donor-imposed restrictions. This can get a little complicated, but generally the rules for depreciation & amortization are applied the same for these items as for purchased assets.

Fundraising Donations

For fund-raising items, such as auction items for an annual gala, the organization should recognize the donated item as a contribution and measure it at fair value. Donors should provide this for items like gift baskets. Any difference between the item’s fair value and the ultimate amount received for the item should be recognized as an adjustment to the original contribution amount.

Contributed Services

There are very unique rules for contributed services. Services contributed by non-affiliates of the organization must meet ALL of the following criteria to be recognized in the accounting records:

  • The service requires specialized skills. This includes those services provided by accountants, lawyers, architects, doctors, nurses, teachers, carpenters, electricians, plumbers or other professionals and craftsmen.
  • The service is provided by individuals who possess those skills
  • The service would need to be purchased if not contributed. An organization should only consider whether it would otherwise need to purchase the service, not whether it could afford to purchase the service.

Services that do not meet the preceding criteria should not be recognized.

Utilities or Building Use

An organization may also receive a contribution of utilities or the use of a building. The contribution should be recognized as revenue in the period it is received and the corresponding expense should be recognized in the period the utilities or assets are used.

There are many other, less common types of non-cash donations, such as beneficial interest in trusts, debt and equity securities and split-interest agreements. If your organization is looking for help understanding these rules, contact an Anders advisor below. Learn more about how Anders works with not-for-profits.

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