How to Track and Report Noncash Donations: From Art to Artifacts to Cryptocurrency

Many tax-exempt organizations in the arts and culture space rely on the generosity of their donors to further their mission. That’s particularly true for museums, which often have a diverse mix of cash and noncash contributions to account for. 

These noncash contributions, which include artwork, artifacts and less tangible contributions such as professional services, are more complex to track and report than cash donations. Tracking and reporting cash donations is relatively straightforward. For noncash donations, the process is much more complex––both from a tax and audit perspective. 

Noncash contributions made to museums are often of considerable financial value and as a result, are subject to significant oversight. Adopting a systematic approach to tracking and reporting noncash donations promotes higher levels of internal governance and ensures compliance with all relevant reporting requirements. 

In defining these frameworks, nonprofit leaders must bear a variety of intricacies in mind. This article will explore those intricacies, highlighting the key issues leaders should be aware of when tracking and reporting noncash contributions. 

Key Forms of Noncash Donations

Noncash donations come in various forms: from art and artifacts to emerging asset classes including cryptocurrencies. Each unique type of noncash donation must be tracked and reported distinct from each other. Tracking different types of noncash contributions separately streamlines reporting requirements and enables nonprofit organizations to better understand the sources of their contributions. 

Read on for an overview of the most common forms of noncash donations received by museums, as well as a brief explanation of the complexities of each. 

Artwork and Artifacts

It’s common for museums to receive donations of artwork, artifacts, or private collections. While many consider these assets priceless, from an accounting perspective, museums must have these donations appraised. 

The IRS requires an item, or group of items, to be appraised when the market value would be $5,000 or more in an arms-length transaction between two unrelated parties. This appraisal should be conducted within 60 days of the donation being made and should be disclosed on IRS Form 8283. This form asserts the value of the donated item and should be shared with the donor, who may claim this value as a deduction on their personal tax return. 

For artwork valued above $20,000, the IRS requires a complete copy of the signed appraisal to be included with the donor’s return claiming the deduction. The museum does not have a similar disclosure requirement, but should keep a copy on file in case any questions arise during audit or tax preparation.

Publicly Traded Securities

Often, donors prefer to donate appreciated stock from their portfolio instead of making a cash contribution. This is especially common in periods where securities have appreciated significantly in value and was a frequent occurrence in 2020 and 2021. 

When a tax-exempt museum receives a donation of a publicly traded security, they often liquidate it immediately. It’s important to note that doing so does not render the donation of a cash contribution. From a GAAP and tax perspective, this donation should be tracked and reported as a noncash donation of a good. 

Professional Services

Nonprofit organizations frequently receive in-kind donations from professionals wishing to support their mission. Consider a hypothetical example: a museum holds a golf tournament to raise funds. A local doctor offers to attend the event to provide support for injuries or health needs that arise during the event. The doctor doesn’t charge the museum for their services, considering it a gesture of goodwill. 

GAAP reporting standards require that the museum report this gesture as an in-kind service. The museum should request an invoice from the doctor, and recognize the invoice value as both an in-kind service and an expense to ensure their books remain balanced. 

From a tax reporting perspective, Form 990 requires a consistent reporting approach to better compare organizational impacts. Therefore, any in-kind services donated to the organization are removed from the form filing as they do not constitute an actual transfer of goods to the organization.

Cryptocurrencies

In recent years, increasing numbers of nonprofit organizations, including museums, have begun to accept cryptocurrency donations. In accounting terms, cryptocurrency is considered a non-regulated piece of property and must be appraised at the time of receipt of any donation over $5,000. 

Since cryptocurrencies have historically fluctuated dramatically in value, most museums liquidate these noncash donations immediately. As with liquidating publicly traded securities, this act does not make the donation a cash contribution. 

If the organization chooses to hold on to any cryptocurrency donations, additional complexities may arise. If a nonprofit were to potentially lose these funds in a bankruptcy event, such as the recent FTX crisis, the value of the assets should not be written off immediately. Instead, the nonprofit should hold the value of the assets on its books until bankruptcy proceedings are complete and the value of losses is fully determined. 

Tracking and Reporting Noncash Donations

Museums should have a well-defined gift acceptance policy that clearly outlines the organization’s policies toward different forms of noncash donations. These policies should include reference to three key documents that serve as financial records of the noncash donations a nonprofit organization has received: Form 8283, Form 990 Schedule M, and the Statement of Activities. 

Form 8283

The IRS requires an appraisal and the filing of Form 8283 when an item or group of items, worth more than $5,000 is donated to the nonprofit. The item(s) should be appraised within 60 days of the donation and both the donor and the donee should agree on the value of the donation. This serves to create a matching history between the tax deduction claimed by the donor and the value reported by the nonprofit on their Form 990. 

As the recipient of the donated goods, the organization must sign the Donee Acknowledgement under Part V of form 8283 and request a copy of the form to be kept in their bookkeeping files.

Form 990 Schedule M

Form 990 is an informational return that tax-exempt organizations must file annually. Included on the form are several schedules the nonprofit is required to complete, depending on their activities throughout the year. 

Schedule M of Form 990 reports the noncash contributions received during the year. If a tax-exempt organization receives an aggregate of noncash contributions in excess of $25,000 annually, they are required to file Schedule M. Organizations are required to disclose the number of contributions, the value of these contributions, and the method used to determine the value of these contributions. 

Statement of Activities

Noncash donations should also be recorded as revenue in the nonprofit’s Statement of Activities. It’s typical for organizations to combine cash contributions and noncash contributions on their Statement of Activities. The delineation of these donations required by the IRS does not extend to GAAP reporting requirements. 

Partner with Smith + Howard: Experienced Nonprofit Accounting Advisors

It’s critical for museums and other arts and culture organizations to embrace a systematic approach to tracking and reporting noncash contributions. Failure to file Form 8283 could result in significant damages for donors, who may see their entire donation disallowed and face increased tax liability with additional penalties and interest.

At Smith + Howard, we’re committed to helping our nonprofit clients stay on the front foot as they navigate all tracking and reporting requirements. Our team dedicates significant amounts of time to attending professional education sessions with the leading voices in the nonprofit accounting field. We always aim to impart our knowledge in every interaction with our clients: whether that’s a quick phone call, webinars, or articles just like this one. 

We encourage financial leaders to take a proactive approach and develop a gift acceptance framework that ensures alignment between all key stakeholders. The existence of these policies promotes strong internal governance and ensures a standardized approach that satisfies all tracking and reporting requirements. 

To learn more about how Smith +Howard’s nonprofit accounting team can support you, contact an advisor today.