GAAP Update: What To Do When Your Arts and Culture Nonprofit Sells a Collectible

October 6, 2023

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Many arts and culture nonprofits have significant collections of artwork, historical artifacts, and other collectible items that are held for public display. Every so often, organizations sell some of these collectible items. 

Before 2020, the proceeds from the sale of these collectible items were only permitted to be used for the purchase of other collectibles. However, after the Financial Accounting Standards Board issued ASU 2019-03, nonprofit organizations are now permitted to use these proceeds to fund the direct care of existing collections. 

In this update, we outline this change to the U.S. Generally Accepted Accounting Principles (GAAP) in more detail. We will share the accounting policies that organizations should have in place and explore the steps that arts and culture leaders should take when their organization sells a collectible item. 

What is a Collectible?

Many of the exhibits in a museum, art gallery, or other cultural institution may be regarded as collectibles. When it comes to accounting for nonprofits, the term “collections” is a technical definition, and therefore it is important to refer to GAAP to appropriately define it. 

U.S. GAAP defines collections as:

“Works of art, historical treasures, or similar assets that meet all of the following criteria: 

  • They are held for public exhibition, education, or research in furtherance of public service rather than financial gain.   
  • They are protected, kept unencumbered, cared for, and preserved. 
  • They are subject to an organizational policy that requires the use of proceeds from items that are sold to be for the acquisitions of new collection items, the direct care of existing collections, or both.”

For arts and culture nonprofits, this definition applies to virtually all artwork, historic artifacts, and other unique items held in service of the organization’s tax-exempt purpose.

ASU 2019-03: Updating How the Proceeds of A Collectible Can Be Used

Prior to ASU 2019-03, the proceeds from selling a collectible could only be used to finance the purchase of new collectibles. However, ASU 2019-03 permitted organizations to update their accounting policies to allow for the proceeds from the sale of a collectible to be used for the care of existing collections. 

Given the often significant costs involved in caring for and restoring timeless works of art, this update gives arts and culture nonprofits additional flexibility to better meet the costs of maintaining their collections. 

In practice, however, many museums and art galleries had already been operating this way before the ASU was issued. Many organizations followed guidelines from the American Alliance of Museums (AAM), which previously contradicted GAAP, stating that proceeds from the sales of collections could be used for the care of existing collections. In essence, the key impact of ASU 2019-03 was to usher in a more uniform approach to the way arts and cultural institutions manage the proceeds from the sale of their collections. 

What To Do If Your Organization is Preparing to Sell a Collectible

If your organization is preparing to sell a collectible item or collection of items, it’s important to bear the following best practices in mind to ensure you remain in compliance with accounting standards and avoid any issues during an audit.


Organizations should commit to having the most valuable items in their collection appraised on some kind of regular schedule. It may also be useful to schedule appraisals in response to an event that might impact the value of an item, such as the passing of the artist. 

Since the majority of nonprofit organizations choose not to capitalize their collectibles on their Statement of Financial Position, these appraisals are less important from a GAAP perspective. They are, however, invaluable in ensuring your organization has sufficient levels of insurance and also demonstrate a commitment to internal governance. 

Accounting Policies

If your organization is preparing to sell a collectible, it’s important to first ensure that the accounting policies that dictate how the proceeds from the sale can be spent have been updated. Doing this before selling an item ensures that the proceeds can be used for the care of existing collections as well as the acquisition of new collections, as permitted by ASU 2019-03.

Learn More: Nonprofits: A Guide to Accounting for Diverse Assets

Determine When (And How) the Collectible Was Acquired

Many organizations receive donations of collectible items. Unless the donor specifies restrictions, the organization is free to sell these items. However, if the nonprofit sells an item that has been donated to them in the past three years, they must file IRS Form 8282 to report the amount they received in the sale. 

Nonprofit organizations should ensure they have the required internal governance infrastructure to track each item in their collection. These records may be kept in spreadsheets or specialized software programs, and typically include information concerning the date the collectible was acquired, the value at the date when the item was acquired, and the value of the item at the most recent appraisal. 

Realizing the Proceeds of the Sale

Collectibles are held for charitable purposes, and as such, there are no tax implications to the sale of a collectible. However, organizations must ensure that the proceeds from the sale are recorded appropriately. 

Some nonprofit organizations may erroneously classify this revenue as investment income or a capital gain, but this is not the case. The revenue is, however, restricted revenue that can only be used for the purposes outlined in the organization’s accounting policy. It’s important to make sure that this is appropriately traced to avoid any issues during a future audit. 

Smith + Howard: Experienced Nonprofit Accounting, Tax, and Assurance Professionals 

Provided an organization has the appropriate accounting policies and internal governance policies in place, the sale of collectible items is typically a relatively straightforward matter. However, since these sales tend to happen relatively infrequently, many organizations suffer from a lack of clarity over the right approach. 

At Smith + Howard, our arts and culture nonprofit accounting team works with a wide variety of clients with significant collections. We encourage organizations to proactively reach out to our team in advance of selling any collectible items. Our professionals are equipped to help organizations develop comprehensive accounting policies and navigate the process of selling valuable collectible items. 

Contact a Smith + Howard advisor today to learn more. 

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