You are a 501(c)3 organization actively restoring a locomotive.

Situation 1: After several years missing, a clearly identifiable item for your locomotive, such as a builders plate, is returned for reinstallation.

Situation 2: A generic item with no markings, such as a headlight, is provided.

In both cases, the items were found while cleaning out a relative's garage and the giving individual seeks a donation letter for tax purposes and has assigned monetary values. No clear record of ownership exists for either item.

Does each situation warrant receiving your letter? Why?

Why not?

Your organization isn't assigning the value… that's between the donor and the tax man. Your organization isn't attesting that the donor has ownership… only that you are receiving the item. Even if the donor is giving back something you already claim to own, such as something that an old-timer long since passed on took home for "safe keeping", I don't see the down side of giving a letter that says the donor is giving it back.

These type of transactions should also include a deed of gift form signed by the donor.

Wesley

I have to underscore the advice already given-- a 501(c)3 organization should never, ever, offer a donor a valuation or appraisal for donations in kind. The museum or charity cannot offer an independent opinion becuase it has an incentive to receive the gift, and therefore its opinion could be influenced by that incentive. The donor must seek an independent apprasal, and the valuation the donor is assigns is between the donor, the appraiser and the IRS--the charity must not get in the middle of it.

Certainly, you can provide a letter acknowledging receipt of the property given. Such letters often stipulate what if anything of value the donor received in exchange for the gift, and they often include a disclaimer that the receiving charity cannot offer tax advice.

And as Wes suggests, the donotion should be accompanied by a signed deed of gift in which the donor asserts that he or she has good title and is conveying it without restriction to the museum (note: the donor's bare assertion that he or she has good title does not make it so, but it gives you a cause for action against the donor should a claimant with superior title later come forward and demand the property from you. This does not happen as a rule with donations where the value is as small as it is with railroad artifacts, but it can happen with art, etc.).

But don't, don't, don't provide a valuation in return for a gift!

The IRS requires a letter of acknowledgement in a particular format. And they discuss this in Publication 1771. http://www.irs.gov/pub/irs-pdf/p1771.pdf

This letter is considered a tax document, so it should be sent at 1099 time (before January 30) and MUST be in the donor's hands by April 15. Or they can't deduct their gift.

The gift must be amply described. If it is a cash donation, that means stating the cash amount. Otherwise value MUST NOT be spoken of - the nonprofit must not guess at the value of a non-cash gift.

The letter MUST discuss quid-pro-quo exchanges. (i.e. the apocryphal PBS tote bag). Usually this will mean one sentence that says there wasn't one. If there was, the nonprofit MUST state the value of the thing given to the donor (i.e. the PBS tote bag). Your museum's newsletter does not count as a thing of value. Is your membership tax deductible? I believe so... http://www.aam-us.org/pubs/mn/MN_ND03_LawEthics.cfm

Yest the new IRS 990 form asks for the value of items donated to a non profit. I was shocked when I saw that in the new form as we would have no idea what value items have.

It sure does. If the 'value' of the item is over 2% of the amount reported on Line 1 of the 990EZ or $5,000 the name and address of the donor and value of the donation must be included on Schedule B. So you do need to place a value on those donated items.

Now I have an additional question. What if the item is a bequest and there are no other heirs in the estate and the estate has been settled? What address do you place on the 990 form?

So how do we place values on these items? Does that mean that we must also have an appraisal done? Or can we just guess? What if the value we have is different than the value claimed by the donor? Do nonprofits now have to bug the donors to share the results of their appraisals so we can fill out the form?

I really do not see how this is supposed to work.

The key is that the donor provides the valuation they are including for their taxes. You can use this on the 501c3's return as the value, if you feel it is reasonable or a valuation you feel is appropriate. Just bear in mind, if there is a discrepancy, it may be cause for an IRS audit. The donor needs to be notified that items over the IRS threshold need an appraisal for deduction. I know some folks are going to scream 'no tax advice', but as a nonprofit, if you are accepting donations that are tax deductible, you do have a responsibility to point the donor in the direction they need to go: tax consultant/appraiser, as appropriate. It also establishes your credibility as a nonprofit that follows the law.