1. IRS Rules & Regs Presented by: Linda L’Hote, Associate Vice Chancellor Campaign Administration, Advancement Services & Donor Relations and Wayne Chipman, Executive Director for Advancement Office of Gift Planning & Endowments

2. Panel of Experts Kyle Newell-Groshong – Lead Accountant, Accounting Services General ledger (PeopleSoft), Government Accounting Standards Board (GASB), University financial policies and procedures, reconciling information by PeopleSoft/Advance Donna Steinmetz – Sr. Fiscal Analyst, Gift & Pledge Processing Compliance Gift Processing Tom Boren – Director, Advancement Services Technology & Information Support Group (TISG) and Biographical Records Penny Blank – Director, University Donor Relations

3. Accounting vs. Counting Accounting follows all regulatory rules: University policies/procedures Internal Revenue Service (IRS) Government Accounting Standards Board (GASB) Financial Accounting Standards Board (FASB) National Association of College & University Business Officers (NACUBO) Counting follows CASE guidelines: Counting generally measures productivity Special rules may be developed by institutions regarding campaign counting, but these must also follow CASE guidelines

4. Scope of Current Audit Gifts-in-Kind Expenditures for non-endowed funds –We have checks and balances for endowed funds

5. Topics of the Day What is a gift and what is not? Definition of a Donor What is a Gift-in-Kind? Types of Gift Credit (Legal and Soft) When is a gift complete? Gift Acceptance

6. Disclaimer Wayne and I are NOT: –Practicing attorneys –Tax advisors –Giving legal advice Our qualifications are: –We have 37 years of combined experience working with various compliance issues in Development

7. What is a Gift? IRS defines a charitable contribution as a donation or gift to, or for the use of, a qualified organization. It is voluntary and is made without getting, or expecting to get anything of equal value. –IRS Publication 526

8. What is a Qualified Organization? Qualified organizations – include non-profit groups that are organized and operated only for one or more of the following purposes –Religious –Charitable –Educational –Scientific –Literary –The prevention of cruelty to children or animals –IRS Publication 526 lists examples

9. Voluntary, etc. Voluntary – not like an “exchange” transaction –There must be “Donative Intent” –Given without the expectation of receiving something of value in return that is outside “quid pro quo” and/or “safe harbor” rules –There is no value attached to naming opportunities, names on honor rolls or gift club membership; “safe harbor” rules apply

10. What is not a Gift? Gifts of services are not generally eligible for the federal income tax charitable deduction Gifts of time, labor or effort Partial Interest (use of home, office space, vehicle, condo, vacation home (not the same as a “fractional interest” ex. Artwork) vehicle, condo, vacation home (not the same as a “fractional interest” ex. Artwork)Discounts

11. What is not a Gift? Gifts to, or for the benefit of, a specific individual (tuition payments) Contributions in which the donor benefits Gifts to, or for the use of fraternities, sororities and non-qualifying student organizations Cost of raffle tickets

12. Definitions of a Donor The IRS defines a donor as someone who makes a contribution directly to a “qualified organization” or legal representative of that organization, or to a qualified trust for that organization, or in a similar specifically authorized legal arrangement. CASE Management Reporting Standards defines donors as those individuals or organizations that transmit a gift or grant to a qualified institution. In cases where a contribution passes through several entities, the last of the entities through which it passes before being received by the donee should be cited as the donor.

13. Two Tips for Determining the Donor Ask the Questions … Whose asset was it immediately before it was transferred to your organization? Who is the check writer/signer? –Be cautious though – some parties act as an agent for the donor

14. Non-Cash Gifts (Gifts-in-Kind) What are they? –Gifts-in-Kind are gifts of tangible or intangible personal property (other than cash or securities) that are deductible by the donor under federal tax law. The IRS uses different terminology –They only refer to these as “Property other than cash” (non-cash gifts)

15. Types of Non-Cash Gifts Publicly Traded Securities Closely Held Securities Tangible Personal Property Real Property Intangible Personal Property Motor Vehicles

16. * Securities * Securities Publicly Traded Securities (common stock) –Securities for which market quotations are readily available on an established securities market as of the date of the contribution Unlike many non-cash gifts, value is easy to determine –Average of the high and low on the day you take possession of the asset

17. Securities Closely Held Securities –Market quotations are not readily available –Valuation is more difficult – many times an appraisal is needed; may want to coordinate time of gift with annual business appraisal –Transaction is typically more complicated/lengthy to administer –Marketability is a consideration in determining whether to accept

18. Tangible Personal Property The term tangible personal property refers to any property, other than land or buildings, that can be seen or touched Examples include: –Equipment –Software –Software Licenses –Printed Materials –Food –Artwork –Books –Furniture –Motor Vehicles

19. Motor Vehicles Distinction now is based on intended use by Donee Does the University intend to significantly use or materially improve the vehicle – OR Does the University intend to sell the vehicle and use the proceeds

20. Motor Vehicles – cont’d Deductibility is affected for the donor Additional responsibilities placed on donor Specific rules regarding written acknowledgments for motor vehicles

21. * Deep Discounts or Bargain Sales * Deep Discounts or Bargain Sales If a company offers to sell a product (not real estate) to the University at a “deep discount” or “bargain sale”, the company should provide a bill of sale clearly indicating the retail price, less the charitable contribution of the discounted amount and a net cost. The discounted amount can be recorded as a gift-in-kind. –If the same discount applies to purchases made by the University on a regular basis and is not uniquely identified as a special reduction to be considered as a donation, no gift should be counted and there is no tax deduction.

22. Services The value of a person’s or organization’s time or service is not considered a charitable contribution and is not countable, regardless of whether the individual assists as a volunteer or as a professional providing a specialized service.

23. Services If services are not recognized by the IRS as a contribution, why are you asked to provide us documentation? –Because of non-IRS regulations that require feeding certain service donations into the general ledger (PeopleSoft).

24. Software, Hardware, and Maintenance Agreements Irrevocable gifts of software or hardware with an established retail value are treated like other gifts-in-kind and counted at the educational discount value or the fair market value, as long as the agreement qualifies as a charitable donation under the laws of the appropriate tax authority.

25. Software, Hardware, and Maintenance Agreements Maintenance agreements are considered contributed services and are not to be counted unless the agreement between the University and the donor includes free upgrades that have a higher established retail value. In that case, the difference between the original retail value and the new retail value is countable as an additional gift.

26. Software, Hardware, and Maintenance Agreements To be considered a gift, the donor must irrevocably transfer ownership of the property to the institution. There must be no implicit or explicit statement of exchange, purchase of services, or provision of exclusive information.

27. Software, Hardware, and Maintenance Agreements Large software donations can be highly complex. Should you encounter one of these gifts, please contact me directly for assistance.

28. Partial Interest in Property Donors cannot deduct a charitable contribution of less than their entire interest in the property. Therefore a partial interest would not be a gift, unless it falls within certain limited exceptions (for example, some charitable annuities). A contribution of a right to use property is a contribution of less than the entire interest in that property and is not a gift.

29. Partial Interest (cont’d) Mary owns a 10-story office building and donates rent free the use of the top floor to the University. Since Mary still owns the building, she has contributed a partial interest in the property and cannot take a deduction for the contribution. Mandy owns a vacation home at the beach that she sometimes rents to others. For a fundraising auction she donated the right to use the vacation home for 1 week. At the auction, the University received a bid from Lauren equal to the fair rental value of the home for 1 week. Mandy cannot claim a deduction because of the partial interest rule. Lauren cannot claim a deduction either, because she received a benefit equal to the amount of her payment.

30. Intangible Personal Property Defined: –Property that has a value but cannot be seen or touched (IRS Pub. 526) Examples include: –Patents and copyright –Intellectual property

31. Intellectual Property Considered intangible personal property, but a special case: –Concern about the difficulty of determining the value of the contribution –Often the donor’s deduction was much greater than the benefit we realized A donor’s deduction is limited to the basis of the property or the fair market value of the property, whichever is less. There are “caps” on intellectual property; lesser of actual cost to produce or $1million

32. Real Property –Real property is land and generally anything that is built on, growing on or attached to the land (IRS Pub. 526) –Real property includes both improved and unimproved real estate

33. Auctions A donor contributing an item to be used in a charity auction is eligible for a tax deduction related to the item donated. Provide donor with a Gift-in-Kind receipt Items purchased at auction: –Only the amount, if any, in excess of the fair market value of an item purchased can be considered a charitable contribution.

34. GIK – Keep “use” in mind Contributed property must benefit the University by either: –Related use – related to the purpose or function constituting the basis of the University’s exemption. Example – A painting donated to a University and used for educational purposes when students study it –Unrelated use – unrelated to the purpose or function constituting the basis of the University’s exemption. Example – A case of wine given to the University to sell at a fundraising auction

35. Non-Cash Gifts Forms 8283 and 8282 Form 8283 – Non-cash Charitable Contributions –Donors use Form 8283 to report information about non-cash contributions Form 8282 – Donee Information Return –Organizations use Form 8282 to report information to the IRS about dispositions of certain charitable deduction property which occurs within 3 years after contribution

36. Form 8283 Section A: –For deductions of $5,000 or less –Also for deductions of publicly traded securities, regardless of amount –Section A is completed entirely by the donor The University does NOT need to be involved with Form 8283 for gifts listed in Section A Gift Processing sends 8283’s as a courtesy for all Gifts-in-Kind, except for Athletics

37. Form 8283 Must Be Completed –For deductions of more than $5,000, except for deduction of publicly traded securities –Section B has four parts. Only Part IV, Donee Acknowledgement, is completed by the University.

38. Form 8283 What we DO NOT certify: –The Appraisal (Value/Legitimacy)

39. Form 8282 Identifies the charitable organization, the original donor and donee (any intermediate donees) Provides information about the property –Description, date received, date sold or disposed of, amount received upon disposition The University must file if the property is sold before the required 3 years.

40. Donor Responsibilities – IRS Forms Determine whether appropriate to file Form 8283 Complete donor sections Present form to University for signature Obtain qualified appraisal if needed File the form with tax return

41. University Responsibilities – IRS Forms Verify information Complete and Sign Return to Donor File Form 8282 if property is disposed of within 3 years after issuing receipt

42. Receipting Non-Cash Gifts Donor receipt should not state a value – only a description of the asset –It is the responsibility of the donor to determine value for tax purposes

43. Policies & Procedures for Gifts-in-Kind No one in the MU community may sign any IRS or other forms that are related to the acceptance of gifts. Questions on IRS 8283 should first be directed to Donna Steinmetz. Gift Planning should be consulted early in the process of obtaining a vehicle.

44. Types of Gift Credit Hard Credit is given to whoever made the contribution Soft Credit (or recognition credit) is primarily for recognition purposes –Can give to as many as you wish as long as the total soft credit does not exceed the gift amount.

45. When is a Gift Complete? In general, a gift is complete when the donor has relinquished control of the asset to the University Checks: –Can give hard credit to one person or split Credit Cards –IRS Rules are firm about gift date –Important to educate donor Important for you to understand the impact of gift date for your donors

46. Written Acknowledgments/ Tax Receipts Required for all contributions of $250 or more (except for quid pro quo) Donor is responsible for obtaining Substantiation to donor must be contemporaneous (that is, in time for tax filing) New vehicle rules require receipt within 30 days of gift (if retaining) or 30 days from date of sale Year-end receipts will not be given this year and in years to follow as a cost-saving measure Donor may make a special request to receive a year-end summary

47. Written Acknowledgments What must they include: –The name of the organization –The amount of a cash contribution or for non- cash gifts, a description of the property (NOT a value) –A statement that no goods or services were provided by the organization, or a description and good faith estimate of the value of the goods and services (quid pro quo)

48. Written Acknowledgments Special rules apply for donated vehicles sold at $500 or less Generally, if the charity sells the vehicle, the donor deduction is limited to the gross proceeds received by the organization from the sale.

49. Written Disclosure & Quid Pro Quo A contribution made by a donor in exchange for goods or services is known as a Quid pro quo contribution. In these situations the disclosure must inform donor that the tax-deductible amount is limited to the excess of the amount contributed over the value of goods or services provided. Disclosure must also provide donor with a good-faith estimate of the value of such goods or services.

50. “Safe Harbor” Rules Quid Pro Quo receipts are not required when: Fair market value of all benefits received in connection with the payment does not exceed the lesser of 2% of the gift amount or $89 OR Gift is $44.50 or more and the cost of all benefits given does not exceed the IRS “low-cost articles” minimum of $9.10 AND The only benefit the donor received consisted of token items bearing the University’s name or logo.

51. “Safe Harbor” Information The “Safe Harbor” Rules change annually. They are published in the last IRB of each year (Internal Revenue Bulletin)

52. Example If a donor gives a charity $100 and receives a concert ticket valued at $40, the donor has made a quid pro quo contribution In this example the charitable contribution part of the payment is $60 Even though the deduction is less than $75, a disclosure statement must be sent because the donor’s payment (quid pro quo contribution) is more than $75 If a receipt is sent for payment under $75, it must show quid pro quo information. Also, remember, solicitation material must always mention quid pro quo.

53. Unreimbursed Expenses Out-of-pocket expenses incurred while providing volunteer services are deductible under certain circumstances (ex. Transportation) Donor cannot deduct a single contribution of $250 or more without a written acknowledgment

54. Whose Rules Do You Follow? Internal Revenue Service (IRS) Government Accounting Standards Board (GASB), Financial Accounting Standards Board (FASB) & National Association of College & University Business Officers (NACUBO) Council for Advancement and Support of Education (CASE) University Policy Donor’s Wishes

55. Whose Rules Do You Follow? Answer: –All but the donor’s wishes, but their “wishes” should be addressed

56. Gift Acceptance

57. Why You Might Not Want to Accept If the gift does not support the mission of your organization If the gift requires the University to do something it otherwise would not do If the gift requires the University to do something in perpetuity If the gift requires you to accept restrictions or obligations that are not in the best interest of your organization If the gift comes with encumbrances such as debt, liability for toxic clean-up, etc. If the gift costs more to accept than it is worth If the gift would be bad for community relations

58. Should We Accept This, and What if We Don’t? Whether or not you ultimately accept a gift or not, be aware of possible issues Donor relations issues Internal political issues Public relations issues Ethical issues Counting issues

59. Gift Acceptance – Who Decides? PresidentTreasurer General Counsel Chancellor Vice Chancellor for Development Vice Chancellor for Administration Associate Vice Chancellor for Campaign Administration, Donor Relations & Advancement Services

60. References Determining the Value of Donated Property – IRS Pub. 561 http://www.irs.gov/pub/irs-pdf/p561.pdf Charitable Contributions – IRS Pub. 526 http://www.irs.gov/pub/irs-pdf/p526.pdf Charitable Contribution – IRS Pub. 1771 http://www.irs.gov/pub/irs-pdf/p1771.pdf Updates on Disclosure and Substantiation Rules http://www.irs.ustreas.gov/pub/irs-tege/topic-g.pdf

61. Time for a Review…

62. What if … Mr. Smith donates the use of an apartment to the University to house a visiting professor for the term (10 months). The rental cost of the apartment is $1,000 per month. Gift or No Gift? No Gift; soft credit How do you acknowledge? Thank-you letter

63. What if … Mrs. Tisdale wants to write a check for $10,000 to support a student from out-of-state who has need. She wants to pick the student. Gift or No Gift? No Gift; soft credit

64. What if … Mr. Jones donates two tickets for a musical concert to a gala auction valued at $100. The winning bidder pays $150. Gift or No Gift? Gift; hard credit How do you acknowledge? $100 donation for Jones; $50 donation to bidder

65. What if … Mr. Jones donates the use of his condo in Florida for one week to the gala auction valued at $2,000. The winning bid pays $1,500. Gift or No Gift? No Gift; soft credit How do you acknowledge? Thank-you letter to donor only

66. What if … Golf Cars USA donates the use of Golf Cars for athletic events. The donor valued the service at $2,500. Gift or No Gift? No Gift; soft credit How do you acknowledge? Thank-you letter

67. What if … Xerox allowed the school use of printers and copiers valued at $26,500? Gift or No Gift? No Gift; soft credit How do you acknowledge? Thank-you letter

68. What if … The Holiday Inn donated hotel rooms for Athletic Department usage valued at $2,000.00. Gift or No Gift? Gift (to be determined due to special IRS regulations)

69. What if … A company donated signs, banners and posters for University usage valued at $5,000. Gift or No Gift? Gift; hard credit How do you acknowledge? Tax receipt

70. What if … A company provided one billboard for a year for University usage valued at $12,000. Gift or no gift? Gift; hard and soft credit

71. What if … The University purchases a large piece of equipment for $68,500. The fair market value of the equipment is $73,500. The University negotiated the one-time discount. Gift or no gift? Gift ($5,000); hard credit

72. What if … That same company also donates a special part that does not come standard with the equipment valued at $5,000, several additional parts to make the equipment operational valued at $10,000 and they send someone from California to install the equipment valued at $5,000. Gift or no gift? Gift - $15,000 hard credit. $5,000 for installation is not a gift (services)

73. Who is the Donor? Who would you record as the legal donor in the following situation: Check received from John Doe, MD, Inc. Does John Doe, the person or John Doe, MD Inc., the business receive the hard credit? Hard credit to John Doe, MD, Inc., with soft credit to John Doe personally

74. Who is the Donor? Who would you record as the legal donor in the following situation? Check received from Schwab Charitable Gift, indicating that we should send an acknowledgment to Jane Smith. Who gets the hard credit: Jane Smith or the Charitable Gift Fund? It Depends! Donor Advised Fund vs. Donor Directed Fund Donor Advised Fund (charitable gift fund); no hard credit. Donor Directed Fund; hard credit

75. Questions?