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Understanding In-Kind Contributions: What US Nonprofits Need to Know

| Updated April 19, 2018

Draft policies and procedures to get the most out of in-kind gifts

Although nonprofits often focus on procuring cash donations, gifts from donors may come in many forms. If your nonprofit receives in-kind contributions, here's help understanding their value and knowing how to manage them.

Defining in-kind contributions

In-kind contributions are donations of goods, services or time — instead of cash.

Tangible goods include things like equipment, books, cars, clothing, furniture and supplies. Goods may also be intangible, such as advertising, patents, royalties and copyrights. Goods may be used, surplus, brand new or even loaned.

In-kind services are professional services donated by groups such as corporations, small businesses, vendors, colleges, individual professionals or tradespeople. For example, your organization could be given transportation or publishing support.

An in-kind donation involving time occurs when people give their time free of charge or for payment by a third party on the nonprofit's behalf. An employer might also loan paid employees to help support a nonprofit.

In-kind contributions as a revenue source and more

In-kind contributions can be an important source of nonprofit revenue, especially during times of economic recession. But there's more.

In-kind gifts can be valuable if donated items are central to your organization's mission, such as providing clothing for the homeless. Other in-kind gifts can help your nonprofit provide its programs and activities at a reduced cost. In-kind gifts may even free up your nonprofit's cash for operating essentials, such as payroll taxes.

Beyond revenue and cost savings, many charities find in-kind contributions an effective way to cultivate supporters and build capacity.

Establishing the value of in-kind contributions

When your nonprofit receives an in-kind gift, you must record it as revenue using the fair value of the gift and noting the date of receipt. Fair value is the price that you'd receive to sell an asset or be paid to transfer a liability.

You can determine the worth of a gift — or corroborate the value suggested by the donor — in a number of ways. For example, you might:

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  • Check the price you'd pay for a good on the open market
  • Obtain quotes from competitors to determine the going rate
  • Use a salary survey to determine the average cost of the skill level needed for the donated service

Once you choose a valuation method, apply it consistently and disclose it within your financial statements.

Determining the benefits and risks of in-kind contributions

Some in-kind gifts might not be worth the associated hassle and expense. For example, accepting certain gifts might run counter to your organization's mission and values or you might not be equipped to manage and maintain the value of a gift, such as real estate.

How can you tell if an in-kind gift is worthwhile? Start by creating your own gift acceptance policy. A written policy can help manage your donors' expectations and help staff and board members who might be asking for or receiving contributions.

Your gift acceptance policy should include:

  • Specific types of gifts that are appropriate and not appropriate
  • Any thresholds to gift acceptance, such as donations of a certain amount or value over a specific period of time
  • Details about how gifts are evaluated and how unacceptable gifts are handled
  • A statement explaining that prior to accepting certain types of gifts, such as real estate, your nonprofit will conduct a review and seek legal advice as needed
  • Whether gifts may be anonymous

To guide donors, post your policy on your website or make the policy available in hard copy.

Establishing parameters for in-kind contributions

To effectively manage in-kind donations, you'll need to establish a process for accepting, documenting and acknowledging gifts.

Gift agreements

If you're dealing with a large in-kind gift given for specific purposes (such as building supplies for disaster relief) or an in-kind gift accompanied by specific or complex requests from the donor, you might use a written gift agreement. This will ensure that your organization and the donor agree on the nature and purpose of the gift. The document also can be used as a reference should a dispute arise. While not a legal document, it can help ensure that both parties' expectations will be met over time.

A gift agreement should be signed by both parties and include details such as:

  • The names of the donor and your nonprofit
  • The start date and, if applicable, end date
  • A description of the gift and the mode of giving
  • The intended purpose of the gift specified by the donor and how your nonprofit plans to fulfill that purpose
  • How your nonprofit will acknowledge the gift
  • Any monitoring, reporting or other undertaking that your nonprofit has agreed to or will do
  • A clause stating that the purpose of the gift is subject to change due to unforeseen events

In-kind forms

Then, consider creating an in-kind form to ease the process of recording, reporting and acknowledging gifts. Ask your donors to provide the following information:

  • A detailed description of the gift, noting if the gift was used and, if so, how old it is and its condition
  • The date the gift was received by your nonprofit
  • The donor's contact information
  • The estimated fair market value of the gift and how the value was determined

Gift acknowledgment forms

Also consider creating a gift acknowledgment form, which donors need to claim a tax deduction for gifts worth more than $250. In addition, sending a gift acknowledgment shows your donors that you value and appreciate in-kind gifts just as much as cash donations.

A gift acknowledgment should contain:

  • The names of the donor and your nonprofit
  • A statement that your nonprofit is a charity that is recognized as tax-exempt by the IRS under section 501(c)(3)
  • A description — but not the value — of the donation
  • A statement that no goods or services were provided by the organization in return for the contribution, if that was the case
  • A description and good faith estimate of the value of any goods or services that your nonprofit provided in return for the contribution

Although responsibility to value an in-kind donation falls on the donor, as a courtesy you might acknowledge the fair value of an in-kind donation. Consider language such as: "Were it not for your donation, we would have had to expend $________ to procure such an item."

You may provide a separate gift acknowledgment after each gift you receive or send an annual summary of contributions by January 31 of the year following the donation. Either way, it's common courtesy to send a thank you as soon as possible after receiving a gift, either through traditional mail or email. Taking this step will reassure the donor that the gift was received and help solidify your relationship.

Examples of written agreements

Before you create a written agreement for your nonprofit, check out examples drawn up by other nonprofits.

Consider these sample gift acceptance policies created by the Nonprofit Risk Management Center, which range from short and simple to detailed. Think about the type of in-kind gifts your nonprofit is most likely to be offered and try tailoring a sample to address your specific needs.

You might also use this sample acknowledgement of a noncash donation from Blue Avocado as a starting point for your own acknowledgement letters.

Evaluating the impact of in-kind contributions

Evaluating the impact of in-kind contributions can be tricky. As much as possible, track specific ways that in-kind gifts help your organization achieve specific goals.

For example, let's say your nonprofit is a museum and your goal is to increase your revenue and up the number of annual visitors by 50,000 over the coming five years. If your organization is given $10,000 in in-kind ads and banners, you might attribute an increase in revenue or visitor numbers after the first year to the advertising gift.

You might also state the impact of an in-kind contribution simply by looking at what you would have spent to pay for a similar good or service and where you'll use that money instead to further your mission.

Finally, cover your success stories in newsletters, social media sites and other marketing materials. This may inspire others to give it a go, too.

This article draws on the expertise of Grace Davies, a Minneapolis-based attorney with special interest in product liability, medical malpractice and employment discrimination.

MissionBox editorial content is offered as guidance only, and is not meant, nor should it be construed as, a replacement for certified, professional expertise.

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