It is very common for nonprofit organizations to receive donations of stock, especially at the end of the year as this is an effective way for donors to give to nonprofits that fits into their overall personal tax planning. Many organizations have a gift policy which requires that gifts of stock are liquidated upon receipt to minimize the risk associated with the stock market. If your organization has such a policy and received a donation of stock, the following will help ensure the donor is properly thanked and the transaction is correctly recorded.
Once a donation of stock has been received, a thank you letter should be sent to the donor. This letter should acknowledge the gift of stock, such as the name and number of shares. It should not list the value of the stock received since the organization is not in the business of valuing stock. Also, the donor should have a record of the transaction from the broker. The stock becomes the asset of the organization once it is transferred to the organization, rather than when it is sold. Therefore, in accordance with generally accepted accounting principles (GAAP), once the organization receives the stock, a contribution should be recorded at the fair value of the stock on the date received. If the donor would like to use stock to pay a pledge, the organization will reduce the balance of the pledge receivable by the fair value of the stock on the date it is received. If the fair value of the stock upon receipt of the gift is greater than the pledge receivable balance, the organization will record a contribution for the difference.
If the organization’s policy is to immediately sell the stock, any difference between the proceeds received from the sale of stock and the fair value recorded on the date the stock was donated will be recorded as a realized gain or loss on the organization’s books. If the organization incurs any fees related to the selling of the stock, that amount should be recorded as investment fees expense.
It is important to make sure the organization is following its gift policy and properly records transactions related to the donation of stock and subsequent sale of stock. Please contact a member of the Hawkins Ash CPAs nonprofit team if you have any questions or need assistance regarding stock donations.More Nonprofit CPA Insights