By Karen Dunn, JD, LLM
Your charity just received a donation of a painting valued at $6,000. You have diligently sent the donor a thank you note that includes all the information that an acknowledgment must have for the donor to take a charitable deduction. That is a very good habit, but is that all that is required?
Additional forms may have to be filed with the IRS or provided to the donor. Suppose your charity sold the painting during the year. Here, additional reporting is required to the donor as well as the IRS. Many charities are unaware of the additional reporting requirements the IRS imposes on certain types of transactions involving donated personal property.
Forms 8283 and 8282 are required for documenting receipt of certain noncash contributions and subsequent dispositions of donated assets. Failure to file can cause the IRS to assess penalties and potentially disallow a charitable contribution deduction for the donor.
Many IRS penalties may be abated if the charity can show that failing to file was due to reasonable cause and not due to willful neglect of the requirements. However, the far more damaging penalty may be an unhappy donor, due to the disallowance of the charitable deduction. This may cause a loss of future donations to the charity and potential damage to the charity’s reputation. What are these forms and when are they required?
Form 8283 – Noncash Charitable Contributions
Form 8283 is a form completed by the donor when making donations of noncash items valued over $500. The charity does not have to complete or file the form, however, they may be asked in certain circumstances to sign the form.
When a charity receives a noncash contribution valued over $5,000, donors must have the charity sign Part IV of Form 8283 to claim the deduction on an income tax return. An exception exists for certain publicly traded securities that have market quotations readily available.
Therefore, if the charity receives a donation of stock valued at $10,000 and the stock is traded daily on the New York Stock Exchange, the charity is not required to sign Part IV of Form 8283. By signing the form, the charity simply acknowledges that the donation was received. The charity is not attesting to the value of the donation being claimed on the form.
Form 8282 – Donee Information Return
When a donated item is sold or disposed of within three years of the donation, Form 8282 must be filed with the IRS within 125 days of the disposition. Two exceptions to reporting exist:
- Items valued at $500 or less at the time of original donation; or
- Items consumed or distributed, without consideration, in furtherance of the charity’s exempt purpose.
A museum may receive several pieces of art from a single donor in a single transaction. Suppose one particular piece of art valued at less than $500 is sold two years after donation. Form 8282 is not required because it meets the first exception.
Suppose Museum X receives a piece of art valued at $6,000. Museum X belongs to a group of museums that obtain art to be displayed at other museums within the group. The donated piece is better suited to a permanent exhibition at Museum Y, a member museum. Therefore, the Museum X donates the art to Museum Y. Form 8282 would not be required as it meets the second exception of being distributed in accordance with the museum’s stated exempt purpose.
Suppose after receiving the art from Museum X, Museum Y does not use the property in its exempt purpose but sells it to an individual within three years of the original donation to Museum X. In this case, Museum Y would be required to file Form 8282 as a successor donee.
Suppose the donee charity is not an art museum, but rather is a research institute. The research institute receives the piece of art valued at $6,000 for display in its offices and within three years of receipt, the research institute donates the art to a museum. Form 8282 would be required since granting the art to a museum is not part of the research institute’s exempt purpose.
When the noncash property is transferred from one charity to another within the three-year period, the transferring charity must provide the following information to the successor donee:
- The name, address, and federal identifying number of the transferor charity;
- A copy of Section B of the original Form 8283 the transferor charity received from the original donor; and
- A copy of Form 8282 within 15 days after the transferor charity files it with the IRS.
Additionally, the successor donee must provide the transferor charity with its name, address and federal identifying number.
Charities should keep track of the number of Forms 8283 signed and the number of Forms 8282 filed during the year. The Form 990 requires disclosure of the number of Forms 8283 signed and Forms 8282 filed (see Part V, line 7d and Schedule M, line 29). It also is a best practice to keep a copy of every Form 8283 signed during the year for your records for at least three years, as the information reported in Form 8283 may be required for completing Form 8282 if the item is later sold.
Because of the key role that donors play in the operations of charities, charities must observe all reporting requirements for donations carefully. There are reporting requirements to the donor and to the IRS. Failure to comply with either one can have negative consequences to the charity and the donors. Charities must comply with the reporting requirements to avoid potential monetary penalties from the IRS and maintain positive relationships with its donors.
© 2016 Clark Nuber PS All Rights Reserved