‘In-kind’ donations, part 2 of 2

Here’s a little more information about in-kind service donations. Services are defined as such things as accounting or legal services or discounted or free rent of facilities.

Contributed services should be recorded as contribution revenue if they create or enhance a nonfinancial asset (such as property or equipment), or meet all of the following three criteria:

  1. The service requires specialized skills.  These include accountants, lawyers, architects, doctors, nurses, teachers, carpenters, electricians, plumbers, etc.
  2. The service is provided by individuals who possess those specialized skills AND
  3. The service would typically need to be purchased if it was not contributed.   Services for which an organization can afford to purchase the service, but would not have purchased it should not be recorded.

Examples of contributed services that should be recorded on the financial statements include donated services (both skilled and unskilled) to construct a building, or pro bono services provided by an accountant or attorney. When dealing with contributed services that create or enhance a nonfinancial asset, FMV may be estimated based on the FMV of the services received, or the FMV of the resulting asset or enhancement.  The organization may use whichever method is easiest to determine.

One more important note about in-kind donations is Form 8282 – the Donee Information return.  If your organization receives an in-kind donation and then disposes of that property within three years after the donor contributed it, your organization may be required to file this form.

There are two exceptions in which Form 8282 is not required:

  1. If the item was valued at $500 or less at the date of the donation.  Note that items that form a set (such as a book collection, or shares of non-publicly traded stock) are considered one item.
  2. If the item was consumed or distributed for charitable purposes.

Form 8282 is due within 125 days after the date of the disposition.