Agenda, cont: Gifts-in-Kind Definition Process to Accept Valuing Gifts-in-Kind Other Considerations Resources
Definition - Auctions An auction is an event in which goods or property are sold to the highest bidder Charity auctions are a method of bringing in private support, and are typically held at our events
Auction Rules There are many IRS rules and general “dos” and “don’ts” we must be aware of to ensure compliance with those regulations, while protecting the possibility of providing a tax- deductible opportunity for many of our event patrons Items contributed for an auction may be tax- deductible.
. Auction Rules, cont. Items contributed for an auction may be tax- deductible There are two underlying rules: 1) The item must be a gift in the eyes of the IRS. This excludes material recognized as either a service or partial interest Examples of non-deductible services include: free massages, legal advice, tax preparation, etc. Partial interest gifts include the use of a vacation home, free rounds of golf, free airline tickets, or stays at a hotel
Auction Rules, cont. 2) The item must actually sell at the auction. Therefore, we do not provide receipts for donated items until after the conclusion of the auction. Those receipts will describe, without indicating value, what was given
Auction Rules, cont. More IRS rules ! Donated auction items fall under the IRS definition for unrelated use property. Any contributed property not put into service by the nonprofit organization falls under this category. (A related use gift would be a piece of medical equipment donated to our School of Medicine to be put into service by the School of Medicine.) Why does this matter ?
Auctions Rules, cont. Answer: Because the law requires a reduction in a donor’s deduction for unrelated use property. We should advise donors when soliciting auction items of the unrelated use aspect of their donation
IRS Filing Requirements The value of the items contributed may call for different actions Donors who give items valued over $500 may need to file IRS Form 8283 with their tax return. They should be encouraged to seek tax guidance and, if required, obtain a copy of the latest version of this form, complete their required portion, and deliver to the Gift Processing Office for signature and return Donors who give items valued $5,000 or more should be advised of their possible requirement to obtain the signature of a qualified appraiser on their 8283 prior to delivery of the 8283 to UC San Diego for signature. We should also inform the donor of our further requirement to file Form 8282 with the IRS whenever we sell donated property of this level within three years of the donation, as will likely occur for donated auction items
Conducting Auctions Important ! Prepare an auction program or descriptions on the bid sheets for viewing before an auction Why ? Bidders must readily know the fair market value (FMV) of each auction item. If the winner knows the FMV in advance of the auction, they will be able to claim a charitable deduction ( a gift) for any amount paid in excess of that FMV Also, donors should be advised that any amount paid for the item up to its fair market value is not considered by the IRS as a tax deductible charitable donation
Conducting Auctions, cont. Obtaining FMV of items You can obtain the estimated FMV from the donors. Either ask the donor to complete a Deed of Gift form or Donor Auction Form or have a dept. staff do so. Deed of gift and Donor auction forms can be found on the Gift Processing website Remember - there can be no listing of an item as “priceless,” unless there is no desire or intent to provide the winning bidder with a possible tax-deduction. In such a case, the winning bid establishes the fair market value and, thus, the bidder receives equal value for their payment (in other words- no gift !!!) Please make all efforts to identify the FMV of auction items. Prior similar auctions and eBay are good sources for values
Conducting Auctions, cont. In order for Gift Processing to properly determine whether the donor of the auction item has made a deductible gift- in-kind AND whether the purchaser of the item has a portion of their gift that is tax-deductible, Gift Processing must receive one list of all auctions items with the name of the donor, item description, declared FMV, and name of the purchaser and what it the item “sold” - An alternative to a “list” is to complete “Auction Purchase forms” (on Gift Processing website) for each item purchased If no records are kept of the auction, we will not be able to receipt the donor and we will have to assume the purchaser paid FMV and thus have no gift portion of their gift
Conducting Auctions, cont. Suggested Disclosure to Auction Bidders - on bid sheets or in auction book “ To our Bidders, We appreciate your support of UC San Diego’s (dept name). All proceeds from the sale of items in our auction benefit (dept. or purpose). It is important we follow IRS guidelines. Therefore we want to ensure you are aware that the amount of your purchase price that exceeds the stated Fair Market Value of the item (disclosed on the bid sheets) is a tax deductible gift. Any amount paid up to the FMV is considered an equal exchange and therefore is not a tax-deductible gift. Your receipt will indicate each of these amounts.”
Conducting Auctions, cont. Lack of proper records of auction items can also cause reporting issues for the UC San Diego Foundation as auction items are subject to sales tax If your division or department wants to hold an auction and has not done so in the past…. Contact Gift Processing ! We can help
Definition – Gifts-in-Kind Gifts of assets that are non-monetary in nature and are either 1) to be kept and retained by the UC San Diego 2) to be sold and/or disposed of 3) to be used in fundraising or for incentives Examples of Gift-in-Kind contributions - Tangible personal property (e.g. equipment, fine art) - Intangible personal property (e.g. patents, copyrights, software licenses) - Real Estate Contributed Services are NOT considered a Gift-in- Kind (e.g. professional design, engineering, construction services) Only out-of-pocket costs related to providing these gifts may be deducted by the donor
Process to accept Gifts-in-Kind If a Gift–in-Kind is tangible property need to determine - Is it readily marketable (can be sold) or - Is it needed by the University (will be used internally) Gifts to be sold such as fine art, real property and other appreciated assets are subject to a detailed due diligence process - Direct to the UC San Diego Foundation - Depending upon review, Gift may or may not be accepted
Gifts-in-Kind to be retained by UC San Diego generally processed through The Regents For Equipment gifts: - Need a department owner - Are documented using a gift letter or deed of gift form - For used for equipment – we need to ensure it is safe, nd we often ask for help to determine the value - If agreement contains indemnity language (e.g. disclaimer of all warranties”, “title and risk of loss” and “indemnification”) expanded due diligence will be required and clearance obtained from UC San Diego’s Environment, Health and Safety Office Process to accept Gifts-in-Kind, cont.
Other considerations in accepting a gift offer ? - Potential ethical issues - Major uncertainty about existence of value - If any financial, promotional or other consideration is paid or given to donor- it is not a Gift-in- Kind - If gift is property, may not accept if it can’t be used internally or sold quickly
Valuing Gifts-in-Kind Gifts-in-Kind are recorded at their Fair Market Value Under certain circumstances value will be assigned by appropriate department official For equipment and software, value may be recorded using the Educational Discount (i.e. what the price the UC San Diego would be paid for the property if purchased) Gifts-in-kind are receipted with a description of the gift only -- “value as declared by donor” is listed as the amount Donors are responsible for determining the deducted amount on their tax returns
Valuing Gifts-in-Kind, cont. The IRS and UC San Diego require that Gifts-in-Kind with a value of $5,000 or higher have an independent appraisal provided by the donor If the gift is valued at $5,000 or more and is produced/manufactured by the entity making the contribution - An itemized inventory list, invoice or letter from vendor donor or published info on value of the items is required
Valuing Gifts-in-Kind, cont. What are Standards for Appraisals? - Independent appraisers - UC San Diego will not pay for appraisals of contributed assets - Must comply with IRS Guidelines - Must be no earlier than 60 days prior to date of the gift - If appraisal lists a range of values, will record value as mid-point
Other considerations Intellectual property gifts are particularly cumbersome – and rare now. Contact us Real estate gifts require a great deal of due diligence and are handled as a planned gift Each Gift-in-Kind can be different – we recommend you contact Gift Processing when you become aware that we have received a Gift-In- Kind or that a donor is considering giving a Gift- In-Kind
Resources CASE Reporting Standards & Management Guidelines - Can be purchased at: eporting_Standards_and_Management_Guidelines_for_Educational_F undraising.html eporting_Standards_and_Management_Guidelines_for_Educational_F undraising.html The following forms and resources can be found on the Gift Processing website: er.ucsd.edu/giftprocessing/ er.ucsd.edu/giftprocessing/ - Deed of Gift form - Donor Auction Form - Auction Purchase Form - UCSD Gift Processing Manual