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About Harvey Mechanic
Expertise
US Federal tax issues of nonprofit 501(c)(3) public charities only. Establishing and maintaining legal requirements for such non-profit organizations in the United States, including Internal Revenue service filings and requirements. I will not be working on this free forum to answer questions about Nonprofit's unrelated or for-profit businesses or how to fill out forms. This forum is only for general questions about federal tax law, not as the law applies to your specific situation. To search my previous answers you can do a Google search:
site:allexperts.com/q/nonprofit
[with your other search terms appended].

Experience
I have been practicing law and especially the law of nonprofit organizations since 1990 when I was admitted to the New York Bar.

Education/Credentials
B.S. Columbia University in New York City, 1970

J.D. (Law Degree) Brooklyn Law School, 1990 -- Cum Laude

You are here: Experts > Real Estate > Tax Planning: U.S. > Nonprofit Law > Assessing FMV for corporate charitable contributions

Nonprofit Law - Assessing FMV for corporate charitable contributions

Expert: Harvey Mechanic - 11/5/2009

Question
Dear Expert,

Let's say that a large pharm corp donates a large dollar value (>$1.5M) of medical consumables (sutures, needles, etc) and medications to my organization. We are a 501(c)(3). Is it the recipient's responsibility to assess fair market value for their donation, or is it incumbent upon the donor to do so? Also, would these donations have to be valued at wholesale prices (they only sell to distributors, no retail) or would we be using the retail/RedBook price? We'd appreciate any advice or references you could give.

Thank you,

David

Answer
The 501(c)(3) organization does not value inventory that is donated to it. You would acknowledge the receipt, though, in accordance with IRS rules. See the IRS Publication "Charitable Donations --- Substantiation
and Disclosure Requirements"
www.irs.gov/pub/irs-pdf/p1771.pdf
on pdf page 5:
"A donor cannot claim a tax deduction for any single
contribution of $250 or more unless the donor obtains
a contemporaneous, written acknowledgment of the
contribution from the recipient organization. An organization
that does not acknowledge a contribution incurs no penalty; but,
without a written acknowledgment, the donor cannot claim the tax
deduction. Although it is a donors responsibility to obtain a
written acknowledgment, an organization can assist a donor by
providing a timely, written statement."

You can give the following information to any such donor:
See IRS Publication 526 "Charitable Donations"
www.irs.gov/pub/irs-pdf/p526.pdf

In the middle column of page 10 of that publication 526 are the
special rules that apply to donations of inventory.
---Start of Excerpt--
If you contribute inventory (property that you sell
in the course of your business), the amount you
can claim as a contribution deduction is the
smaller of its fair market value on the day you
contributed it or its basis. The basis of donated
inventory is any cost incurred for the inventory in
an earlier year that you would otherwise include
in your opening inventory for the year of the
contribution. You must remove the amount of
your contribution deduction from your opening
inventory. It is not part of the cost of goods sold.
If the cost of donated inventory is not in-
cluded in your opening inventory, the inventory's
basis is zero and you cannot claim a charitable
contribution deduction. Treat the inventory's
cost as you would ordinarily treat it under your
method of accounting. For example, include the
purchase price of inventory bought and donated
in the same year in the cost of goods sold for that
year. .
---End of Excerpt--

Harvey Mechanic, Attorney at Law -
Harvey108@hotmail.com

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