Say No to a Free Mustang? Avoiding Pitfalls of Noncash Gifts

This article was originally published by The Chronicle of Higher Education on January 3, 2017.

For many people, a cherry-red 1968 Ford Mustang convertible would be a dream car. But for Timothy Winkler Sr., it was anything but.

In the early 1990s, Mr. Winkler worked in the development office at a small, private university. A donor wanted to give his restored Mustang to the institution. An appraiser, hired by the donor, valued the car at $27,000. The expectation was that the university would sell it and keep the proceeds. Meanwhile, the donor would claim a $27,000 charitable deduction on his taxes. Win-win.

But it didn’t work out that way. When the university moved to sell the car, it was valued at only $8,000. And that created an awkward situation.

If the university had sold the car at that lower price, Mr. Winkler said, the donor would have had to make a $19,000 adjustment in his deduction. Because the college didn’t want to put the owner in that position, it ended up storing the vehicle for three years, at which point the car’s sale would not influence the donor’s taxes. The price of storing an automobile for that long? About $6,000, according to Mr. Winkler, who is now chief executive of the Winkler Group, a fundraising consulting firm.

“In-kind gifts can be a blessing or a curse, really just depending on how they’re handled,” says Mr. Winkler. The key, he says, is having the proper guidance in place before a donor proposes a gift of property. “Having done their due diligence long before that transaction ever takes place, that’s the most important part,” he says.

Long-Term Storage

In 2006, Henry Ford Community College, in Dearborn, Mich., was offered an art collection from a local art gallery that the donor valued at $642,000. The institution did not have a plan for what to do with the collection, which has yet to be sold. Furthermore, a 2007 appraisal found the works to be worth just $225,000.

Reginald Best, vice president for development at what is now called Henry Ford College, says the institutions should have hired its own appraiser.

“The college did not do that,” says Mr. Best. “We learned a lesson. If the donor says it’s over $5,000, we want an independent appraisal.”

The contribution was made before Mr. Best joined the college, but he’s been responsible for it for the past three years.

A smart gifts-in-kind plan sets firm guidelines about what can and can’t be accepted, accounting for some of the hidden costs that noncash gifts can come with, like storage, installation, cleaning, and even transportation.

Mr. Best recommends getting board directors involved to decide what kinds of gifts are acceptable. And if a gift doesn’t fit the mission, be prepared to say no.

“I don’t want to keep anything and just store it because there’s no value in storing it,” said Mr. Best. “Whatever we get, we want to immediately put it to use.”

Monitoring Shelf Life

Even nonprofits that rely on noncash gifts, like food banks, have to think ahead. Most companies that donate food and personal items won’t deliver them, says Steve Ericson, director of food procurement at the Northern Illinois Food Bank.

“We pick up almost all of our donations,” says Mr. Ericson. “On the flip side of that, in order to help our agencies take more food, we also deliver it for free.” The cost of drivers, fuel, insurance and vehicle maintenance adds up quickly.

Because of those costs, the food bank has strict policies about what donations it will and won’t accept. For example, all food donations must have several weeks left before their expiration date. “Our goal is three weeks of life left,” he says. “If the client of a food pantry is taking that product home, they don’t want to have to eat it in their car because it’s so short-coded.”

Likewise, at the Goodwill of Central & Southern Indiana, which received some 12,000 product donations this New Year’s Eve alone, success means ensuring that the contributions aren’t going to end up costing more than the revenue they generate.

For example, the Indiana group will no longer accept old televisions thanks to the high cost of recycling and the little money they bring in. “Anything that’s donated to us from a goods standpoint, we want to be able to use to generate revenue to support the mission,” says Cindy Graham, vice president for marketing.

Matching Gifts With Needs

For museums, tangible contributions can be particularly tricky. A donor giving a beloved piece of art to a local institution should know upfront whether it will go in the museum’s collection or be sold.

At the Columbus Museum of Art, a committee of curators, trustees, and members of the local community weighs all potential additions to the collection. Donated artwork that does not fit with the Ohio museum’s vision is sold.

When it comes to valuing the art, a licensed, professional appraiser is the way to go, said Lucy Ackley, the director of development, “because we, the museum, are not the ones to put a value on it. With any in-kind gift, it is the responsibility of the donor to give the value” to the IRS.

Those policies help assure that the museum is only accepting pieces it can put to use and avoids the sticky situation of playing independent appraiser.

Even with safeguards in place, development offices may find themselves on the receiving end of some challenging donations.

Last year, Columbus folk artist Aminah Robinson died and left all of her estate to the museum, including hundreds of artworks — and the deceased artist’s dog, Baby. While the paintings stayed within the museum’s walls, the canine did not. Said Ms. Ackley, “for a while one of our staff members took care of the dog until we could find the little dog a good home.”