The JMML Foundation
Policy on Donated Goods and Services
23/08/06
Filing #
JMMLF Policy on Recording Donated Goods and Services
I. Purpose: This policy describes how JMMLF will record the receipt of donated goods and
services per IRS and GAAP requirements.
II. References
1. SFAS Information: http://www.fasb.org/pdf/fas116.pdf
2. IRS Home Page: http://www.irs.gov – search for Form 990 for the appropriate tax year
III. Definitions
1. GAAP: Generally Accepted Accounting Procedures
2. SFAS: Statements of Financial Accounting Standards
IV. Policy
1. GAAP Information:
There is a difference in the requirement of reporting for donated services between
Generally Accepted Accounting Procedures (GAAP) and Federal Tax Filing (form
990).
GAAP requires a charity to record the fair market value of donated
goods/facilities/services on the books. Recording such items is a requirement for a
successful audit.
SFAS 116 requires the fair value of donated services to be recognized in the financial
statements IF the services EITHER (a) create or enhance a financial asset (b) require
specialized skills, are provided by persons possessing those skills, and would need to be
purchased if not donated.
Here is a specific example from literature BOARD MEMBER SERVICES. “While
board members often possess specialized skills their services should be recorded ONLY
if they are used in connection with a building or renovation project or if they would be
purchased if not donated. To illustrate, the services of a CPA who is the board’s treasurer
who reads financial statements and reports the financials to the board would NOT meet
the criteria for recognition. However if the CPA prepares the form 990, that WOULD be
recognized because if the board member didn’t do it, the charity would have to pay an
outside CPA to do it.
Under SFAS 116 Donated Materials (also called donated goods in this document) is
recorded in “contributions” and in either inventory or expense at the fair market value. As
a side note “unconditional promises to give donated materials” are also recorded. It is
noted that it is sometimes difficult to determine “fair value” of items. The guidance
suggests some methods which include: catalogs, vendors, independent appraisers, and
estimated sales price. (We can also use technologies such as ebay to find the value of
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The JMML Foundation
Policy on Donated Goods and Services
23/08/06
Filing #
similar items.) In regards to “donated materials for fund raising purposes” the end result
is that contributions are netted to the amount received for the item and cash is debited for
the amount received for the item.
2. IRS Form 990 Information:
Federal Tax Filing in the form of form 990 does NOT require the reporting or inclusion
of any value of donated services/goods/facilities. But it does ALLOW the reporting of
the information in a few different sections of the report. In parts IV-A “Reconciliation of
Revenue per Audited Financial Statements with Revenue Per Return,” and IV-B
“Reconciliation of Expense per Audited Financial Statements with Revenue Per Return”
of the 990 report there is a reconciliation of the GAAP books to the Federal Books where
the GAAP books include donated goods and services and the Federal Books do NOT
include donated goods and services. The IRS line instructions for those lines are as
follows:
Note that this section is
only required if the
charity has had an audit
Lines b2 in part IV-A and IV-B is the reconciling line item for donated goods and
services. Separately there is another opportunity to present the value of donated goods
and services in part VI “Other Information” line 82b. In that line you also enter the value
of donated goods and services. The intent of having line 82b on the form is for
INFORMATIONAL purposes only. That number is not included in total revenue or
expense calculations from a federal tax standpoint. The IRS line instructions for line 82b
are as follows:
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The JMML Foundation
Policy on Donated Goods and Services
23/08/06
Filing #
Note the point that filling this in
is optional and is used by
charities to help make public
their donated goods and
services. This number is for
reference only, it is not included
in the other areas of number
reporting that the IRS cares
about (Parts I, II)
3. JMMLF Policy
JMMLF will record the value of donated goods and services such that they are included
in GAAP financials to facilitate any future audit. Those items will be tracked separately
so they are easily identified and taken out for federal filing. A work paper should be
maintained that reconciles the balance of each of the donated goods and the donated
services accounts, the content of that work paper is populated from provided goods
donation and service donation templates.
The amount of donated services will be included in the optional parts of the federal filing
so that donors who view our 990 on-line can have visibility to the amount of our donated
goods and services. For donated services the guideline is that the service must be
provided by a professional and it must be something that JMMLF would need to purchase
if not otherwise provided. Currently we identify 3 specific items that fall into this: 1)
The services provided by our board member to fill out and file tax filing, 2) the services
provided by our web programmer to create and maintain the website, and 3) the service
provided by our board member to host the website. Other services could be identified in
the future as long as they meet the standard of “be provided by a professional and it must
be something that JMML would need to purchase if not otherwise provided.” The
finance committee of the board would apply that rule to any new service not listed herein.
We need to record donated goods as well, specifically as it relates to the silent auction
and items associated with the proposed golf outing.
4. Examples of recorded donations
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The JMML Foundation
Policy on Donated Goods and Services
23/08/06
Filing #
We require the below service and goods templates to be filled in to support any service or
good amounts we record. Examples of accounting are noted below as well as templates.
Example: Accounting for Service Donation of $500 worth to tax filing work
Donated Accounting Fees
Donated Services Contributions
Debit
$500
Credit
$500
[expense account]
[revenue account]
Example: Accounting for Service Donation of $1000 worth of web programming
Donated Expenses – Internet
Donated Services Contributions
Debit
$1000
Credit
[expense account]
$1000 [revenue account]
Example: Accounting for Donation of internet server space/hosting service $300
Donated Expenses – Internet
Donated Services Contributions
Debit
$300
Credit
$300
[expense account]
[revenue account]
Example: Donated Good auctioned off for $100, where good was never held in inventory
such as items auctioned in silent auction or items donated for golf outing. There are 2
steps to the first recording the donation, second recording the receipt of cash.
Debit
Step 1 record the donation
Donated Goods Expense
Donated Goods Contributions
$100
Step 2 record the cash
Cash received
Special Events Income
$100
Credit
$100
[expense account]
[revenue account]
$100
[expense account]
[revenue account]
Note step 1 records the value of the donation at fair market value. In the example above
the realized value (cash received) is equal to the fair market value. But if in reality there
is a difference, then an adjusting entry needs to be entered to the entries in step 1 to adjust
the value of the donation to the realized value.
Section 1303.7 of our audit materials specifically notes “Donated Materials Used for
Fund Raising Purposes. Organizations may receive contributions of gifts in kind (such as
tickets, gift certificates or merchandise) to be used for fund raising purposes. …. When
an organization receives an item for fund raising, it should be measured at fair value.
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The JMML Foundation
Policy on Donated Goods and Services
23/08/06
Filing #
The difference between the fair value and the amount received for the item (realized
value) should be recorded as an adjustment to the original contribution amount.”
For example we receive a donation with back up indicating that the fair market value is
$100, later we auction it off for $80. Then we have 3 steps to record this entry. A. record
the donation at fair market value B. recognize the $80 realized value. C. adjust the
donated value to the realized value.
Debit
Credit
Step 1 record the donation at fair market value
Donated Goods Expense
$100
Donated Goods Contributions
$100
[expense account]
[revenue account]
Step 2 record the cash
Cash received
Special Events Income
[balance sheet account]
[revenue account]
$80
$80
Step 3 adjust the donation to the realized value (debit the contribution account by
$20 which is the difference between FMV and realized value) Note if the realized
value is greater than the FMV then the contribution account is credited.
Debit
Donated Goods Expense
Donated Goods Contributions
$20
Credit
$20
[expense account]
[revenue account]
In reality for JMML, the likelihood is that for the accounting the donation and the silent
auction value will happen simultaneously. If that is the case, we can limit our accounting
down to just 2 steps, but the values used in the 2 steps are not the fair market value, they
are the actual realized cash value. In our example the actual realized value is $80.
Debit
Step 1 record the donation
Donated Goods Expense
Donated Goods Contributions
$80
Step 2 record the cash
Cash received
Special Events Income
$80
Credit
$80
[expense account]
[revenue account]
$80
[balance sheet account]
[revenue account]
5. Templates (with Examples) for Recording Donated Goods and Services
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The JMML Foundation
Policy on Donated Goods and Services
Service Template
Person Providing the Service
Description of Service
Specialized Skills
Method Used to Determine Fair Market
Value (rates, dates, hours, rationale, etc.)
Fair Market Value of the Service
Justification statement – would JMML
need to have purchased this if it was not
donated?
Goods Template
Person Providing the Good
Description of the Good
Date of Donation
Method Used to Determine Fair Market
Value
Fair Market Value of the Good
Actual Cash Amount Received by JMML
for the Good
23/08/06
Filing #
Joe Smith
Accounting service to file IRS form 990
CPA
Received quote of hourly rate from another
CPA of $100 an hour, Joe worked 10 hours
during week of 6/1/2006-6/7/2006
$1000
Yes, JMML would have needed to
purchase this because JMML is required by
law to make this filing.
Joe Smith
New Sony DVD Player X23
8/5/2006
Internet search of average retail cost, print
out from Best Buy website attached
$100
$80
V. Personnel Responsibilities
1. JMMLF Treasurer – records the receipt of donated goods and services per the
2. JMMLF Finance and Audit Committees – review the records to ensure complete
entries and proper accountability
VI. Periodic Reviews
1. Reviewer: Finance Committee
2. Method: Will ensure all records are complete and correct prior to submitting annual
IRS and GAAP forms
3. Periodicity: Annually.
VII. Date of Effect: Immediately
Signature of Chair/Acting Chair _//Signed by Ina Masten, chair// _______________
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