Why Nonprofits Shouldn’t Value Non-Cash Gifts in Donor Acknowledgments

When nonprofits receive non-cash gifts—such as stock, property, or other tangible assets—it might feel natural to want to include the value of the donation in the acknowledgment letter to the donor. However, there’s a good reason why nonprofits should avoid valuing non-cash gifts: it’s the donor’s responsibility, not the charity’s, to value their donation.

While it may seem helpful to provide a specific number, valuing non-cash gifts can create risks for both the donor and the nonprofit. Here’s why:

1. You Don’t Have the Full Picture

Determining the value of a donation isn’t always straightforward, and charities don’t have all the details of the donor’s unique tax situation. For example:

• A donor may have reached their annual deduction limits or may not itemize their taxes.
• A donor may not itemize their taxes and, therefore, can’t benefit from the deduction.
• The market value of certain assets (e.g., stocks) can vary depending on how the donor calculates it—using the day’s average price or the closing price, for instance.

Even well-meaning estimates can lead to misunderstandings. If a donor relies on an incorrect value and faces tax complications, they may feel misled. In one extreme case, a donor was so upset about a misunderstanding regarding the deductibility of donated services (which are never deductible) that they printed flyers and posted them around town to voice their frustrations—an awkward situation for everyone involved!

2. Valuing Non-Cash Gifts Can Create Disputes

Providing a valuation can backfire in several ways:

• Challenges to the Valuation: Donors may dispute the charity’s assessment, even though nonprofits aren’t equipped to provide authoritative appraisals. These disagreements can harm donor relationships.
• Risk of Inflated Valuations: If the charity overstates the value, it could appear complicit in potential tax fraud. This puts the donor at risk and could damage the nonprofit’s reputation.

3. The IRS Has Specific Reporting Requirements

Charities are required to report the sale price of donated items if they are sold within two years of receiving the gift. This means the IRS will ultimately see the actual value of the donation, which could differ from any prior estimate. If a charity’s earlier valuation is incorrect, it may lead to further complications for the donor.

4. Recommended Best Practice

Instead of assigning a value to non-cash donations, nonprofits should simply describe the donation in their acknowledgment letter. For example:

“Thank you for your generous gift of 100 shares of XYZ stock.”

This approach keeps the process simple and reduces the risk of confusion or disputes.

We also recommend that donors work with their tax advisors to determine the value of their donation and how it fits into their overall tax planning. This ensures that donors receive accurate guidance tailored to their specific circumstances.

By following these practices, nonprofits can avoid unnecessary risks, maintain positive donor relationships, and ensure compliance with IRS guidelines while continuing to focus on their mission.

Ellis Carter is a nonprofit lawyer with Caritas Law Group, P.C. licensed to practice in Washington and Arizona. Ellis advises nonprofit and socially responsible businesses on federal tax and fundraising regulations nationwide. Ellis also advises donors concerning major gifts. To schedule a consultation with Ellis, call 602-456-0071 or email us through our contact form.