BSC Director’s Meeting March 4, 2008

1. BSC Director’s MeetingMarch 4, 2008 David J. Pinker, Director Information Services djp39@cornell.edu, 4-7172

2. Sections • IRS Rules and Regulations • Gift Recognition Credits

3. IRS Rules and Regulations Section I

4. Understanding Gifts The IRS uses the term charitable contribution. A charitable contribution is a donation or gift to, or for the use of, a qualified organization. It is voluntary and is made without getting, or expecting to get, anything of equal value. -IRS Publication 526

5. Understanding Gifts Cornell University Policy 3.1, Accepting University Gifts Financial support given to the university in a variety of forms including, but not limited to: cash, marketable securities, and gifts-in-kind such as tangible fixed assets and consumable commodities. A donor must enter into the transaction voluntarilyand receive nothing (other than a token of appreciation) in exchange. If the value of goods and services given back to a donor in exchange for their support is more than a token value, an exchange transaction has occurred and the gift valuation must be decreased by the value of the goods and services given back to the donor.

6. Understanding Gifts … a qualified organization • Most organizations have to apply to the IRS to become a qualified organization (churches do not) • IRS sends a letter affirming tax-exempt status under 501(c)3 of the Internal Revenue Code. • Some donors request a copy of the 501(c)3 letter; Information Services has copies on hand.

7. Understanding Gifts …voluntary • Not a contractual obligation. • Not under a court order. …without getting, or expecting to get, anything of equal value. • Not an “exchange transaction”; like a sale in a bookstore, where you get something for its fair market value. Donor must intend to make a gift.

8. What is a gift? (According to the IRS) • Cash • Property other than cash • Out-of-pocket expenses incurred while doing volunteer work for a qualified organization. • Certain conditions apply • Unreimbursed • Directly connected with the services • Arise only because of providing the services

9. Property other than cash-Referred to as “Non-Cash” or “In-Kind” gifts • Securities Publicly Traded or Closely Held • Property • Real • Real Estate • Tangible • Motor Vehicles, Boats and Airplanes • Intangible • Patents, Designs, Patterns, etc. • Intellectual

10. Non-Cash Gifts-IRS Forms 8283 and 8282 • Donors use Form 8283 to report information about non-cash charitable contributions if the amount is over $500. • Donee organizations use Form 8282 to report information to the IRS about dispositions of certain charitable deduction property made within 3 years after the donor contributed the property.

11. Form8283 Form 8283 has 2 sections: Section A and B. We are only concerned with Section B, Part IV-Donee Acknowledgment. This must be signed by an Officer of Cornell University or designee: • Acknowledge that Cornell is a qualified organization. • That we received the property described in Section B, Part I- Information on Donated Property. • The date on which we received that property. That we will file Form 8282 if we sell, exchange, or otherwise dispose of the property within three years after receipt. • Whether we intend to use the property for an unrelated use.

12. Form 8282 Filing Form 8282 is our responsibility. • The form identifies our organization, the original donor, donee and any intermediate donees. • Provides information about the property • Description • Date received • Date sold, exchanged, or otherwise disposed of • Amount received upon disposition

13. What isn’t a gift? -According to the IRS • Some common activities are specifically excluded: • Value of your time or services. Please Note: *Contributions of services are recognized only if the services received (a) create or enhance non-financial assets or (b) require specialized skills, are provided by individuals possessing those skills, and would typically need to be purchased if not provided by donation. • General volunteer service. • Services of attorney, portfolio manager, etc. (accounting treatment might be different) Expenses incurred while providing the service might be deductible, but not the value of the service itself.

14. IRS Rule in Cornell Language – Gifts of Service Cornell University Policy 3.1, Accepting University Gifts Gift receipts are not issued for gifts of service. Any value that may be assigned to these gifts is for donor recognition purposes only. This value for gifts of service is determined by the Director of University Development.

15. What isn’t a gift? • Some common activities are specifically excluded: • “Partial interest” Use of someone’s home, auto, rent-free office space, etc. In general, donor must transfer their entire interest in property • If an auto dealership gives you a new car, that could be a gift. • If an auto dealership lets you use a new car for a year, that’s not a gift.

16. What isn’t a gift? • Specifically excluded (cont’d.): Gifts to, or for the benefit of, an individual. • For example, tuition payments, or “scholarships” for donor-specified students. • The underlying issue is whether the effect of the gift is to benefit the charitable purpose of the qualified organization, (Cornell) or to benefit the individual. To preserve deductibility, the organization must control the selection. • If funds come with a name attached, almost certainly not a gift to the organization.

17. What isn’t a gift? • Specifically excluded (cont’d.): • Cost of raffle, bingo, or lottery tickets. • The underlying issue is that the donor has received full value in return, namely the chance to win a valuable prize. • Any time you enter donors only in a drawing, you may well negate the deductibility of all of their gifts! Best practice: allow an easy way for non-donors to also participate in the drawing.

18. What isn’t a gift? • Specifically excluded (cont’d.): • Gifts to, or for the benefit of, fraternities or sororities. • Fraternities and sororities may be not-for-profit organizations, but gifts to fraternities and sororities are not deductible as charitable contributions. The underlying issue is whether the effect of the gift is to benefit the charitable purpose of the qualified organization (Cornell), or to benefit the fraternity or sorority.

19. Quid Pro Quo Gifts Latin meaning something given in return for something else (something for something). Remember, a contribution “isvoluntaryand is made without getting, or expecting to get, anything of equal value.” Question: What if you get, or expect to get, something of lesser value in return?

20. Quid Pro Quo Gifts“Something for Something” You cannot deduct as a charitable contribution…the part of a contribution from which you receive or expect to receive a benefit. (IRS Pub. 526)

21. Quid Pro Quo Gifts“Something for Something” • Examples • A donor makes a contribution of $1,000 and is entitled to receive a framed art print, valued at $125, in return. • A company is a “gold sponsor” of a charity golf tournament for $5,000, and is entitled to send 4 of its employees who each get to play a round of golf, eat 2 meals, and get an assortment of “golf gifts”.

22. Quid Pro Quo Gifts“Something for Something” • It doesn’t matter if anyone actually receives anything, all that matters is that there was an expectation that a donor, and/or others of their choosing, would do so. To preserve deductibility, the donor must decline any benefits, and do so no later than when the gift is made.

23. Identifying the Legal Donor • “Contributor” includes individuals, fiduciaries, partnerships, corporations, associations, trusts, and exempt organizations. -IRS Form 990 Instructions Question:So that’s the range of entities, but who is the donor for a specific gift? Answer: The contributor is whoever transferred their money or other property to the University. Not whose hands were on it last, but to whom did it last belong.

24. Identifying the Legal Donor • A pretty good rule of thumb for checks: Whose account was the check drawn on? • There are exceptions! • Trust offices. • Payroll deductions passed on by the employer, acting as the donor’s agent. • Essentially, any person or organization acting as the agent for another person or organization. • Donor-Directed and Donor-Advised Funds

25. When is a gift complete? In general, a gift is complete when it has left the donor’s control. • Specific rules for contributions of cash, by credit card, of securities.

26. When is a gift complete? • Cash and checks • Received by mail (USPS) – the postmark date (as long as the check clears in due course). • Received by FedEx/UPS – when it’s in our hands. • Delivered in person – when it’s in our hands.

27. When is a gift complete? • Credit card charges When the charge is made. • Not when the donor mails the form authorizing the charge. The credit card statement is used as substantiation of the gift.

28. When is a gift complete? • Securities (paper certificates and signed stock power). • Received by mail- the postmark date. • Received by FedEx/UPS, or delivered in person –when both items are in our hands.

29. When is a gift complete? • Securities (paper certificates sent to the company for re-registration). The date on the certificate issued in Cornell’s name. Donor does not have precise control of date of gift (which determines the value of the gift!).

30. When is a gift complete? • Securities (electronic transfer via a broker). The date the shares are actually received in our account. • Not when the donor gives instructions. • Not when the shares leave the donor’s account. • Donor does not have precise control of date of gift. • Questions regarding Securities should go to Jennifer Saville, jms36@cornell.edu

31. Gift Receipts • Donor Responsibilities • Donee Responsibilities

32. Gift Receipts-Donor Responsibilities • Determine whether to claim a charitable deduction. • Determine the period in which to claim a deduction. • Determine the amount to claim as a deduction. • Obtain written substantiation for gifts of $250 or more. • The donor is responsible for things that the donor is in the best position to understand.

33. Gift Receipts-Donee Responsibilities • Stating the name of the organization. • Identifying what was received from the donor. • The amount of a cash gift. • A description of any property other than cash the taxpayer transferred to the donee organization. • Disclosing if any substantial goods or services were provided to the donor in return for the gift; more than $75 partly as a contribution and partly in exchange for goods and services. • The donee is responsible for things that the donee is in the best position to understand.

34. Gift Receipts • Dating receipts • No IRS requirement that the receipt include a date. • Determining the date of gift, and when to claim a deduction, is ultimately the donor’s responsibility. • Our “Gift Date” is the date on the source we received: envelope, cash in-hand, date of the charge to a credit card.

35. Tax disclosure

36. Gift Receipts • Special cases • Non-Cash Gifts • Gifts-In-Kind • Payroll Deduction • Gift Planning • Auctions • Unreimbursed Expenses • When not to send a receipt

37. Gift Receipts – Non-Cash Gifts • We issue a descriptive receipt for all Non-Cash Gifts : • Describe the asset in enough detail that it can be specifically identified. • The receipt does not indicate a value for the gift. • Determining the value of a charitable contribution for federal income tax purposes is the donor’s responsibility.

38. Gift Receipts – Payroll Deduction • Donor can support deduction with 2 items: • Pay stub identifying and showing amount of deduction, and • A statement that no goods and services were provided by the organization in return for the contribution, or a description and good-faith estimate of the value of the goods and services provided • Can be part of solicitation materials, authorization form, or pledge confirmation letter

39. Gift Receipts – Gift Planning • Really a special sort of quid pro quo • Donor donates something of value and gets something of value in return. • Annual payments (annuity, annuity trust, etc.) • Right to live in the house during their lifetime (retained life interest) • The Gift Planning Office provides the donor with documentation that also serves as a receipt. • Any questions, contact John McKain, jam343@cornell.edu; or Chelle Lust, msl28@cornell.edu

40. Gift Receipts - Auctions • Donations of things to auction. • Subject to the same rules as other donations. • Donations of services, partial interest, etc. are not deductible • Auction “purchases” that include a gift component. • Donor has to intend to give more than the item is worth • Subject to quid pro quo rules • Only the portion, if any, over the fair market value (FMV) of the item, is a contribution • Have to establish a fair market value for each item

41. Gift Receipts-Unreimbursed Expenses • Written Acknowledgment for Unreimbursed Expenses. • We describe the voluntary services • We identify what, if anything, Cornell provided the volunteer in return • We do not identify, or substantiate, anything about the expenses; that's the donor's responsibility

42. When not to send a receipt? • Naming someone other than the donor. • i.e. naming an individual for a gift from their business, or from a donor-advised fund they established • For something that’s not a gift. • i.e. contributed services, or purchase of raffle tickets • When we want to express appreciation but not in the form of a receipt.

43. “Deductible”-for whom? As what? • There are many kinds of deductions besides charitable deductions, such as business expenses. • Deductibility depends on many things, some of them entirely out of our view. • e.g. limitations related to other gifts the donor made to other organizations. Deductibility is complicated-don’t give tax advice. Tell donors to consult their tax advisor.

44. IRS – What was new in 2007? • Substantiating Cash Gifts • Charitable IRA Distributions

45. New in 2007Substantiating Cash Gifts • Under the Pension Protection Act of 2006 • For all cash contributions, donors need one of three records: • Cancelled check • Bank record • Written acknowledgment from the charity • Record must include • The organization’s name • The date of the contribution • The amount of the contribution -Pub 526

46. New in 2007Charitable IRA Distributions • Under the Pension Protection Act of 2006 IRA withdrawals used for donations are excluded from the taxpayer’s gross income, but there are some conditions (formerly included): • From traditional or Roth IRAs • not a 403(b) plan, 401(k) plan, employer-sponsored retirement plan, SEP, Keogh, etc. • In 2006 and 2007 • Up to $100,000 per year • Must be 70 ½ years old • For more information or to learn how donor’s can contribute through an IRA withdrawal, contact John McKain in the Office of Gift Planning, jam343@cornell.edu

47. Record-Keeping Usually, records that support an item of income, deduction, or credit must be kept for 3 years from the date the return is due or filed, whichever is later. • Section 501( c ) organizations that receive tax-deductible contributions must keep sample copies of their fundraising materials, such as: • Dues statements • Fundraising solicitations, • Tickets, • Receipts, • Or other evidence of payments received in connection with fundraising activities

48. Gift Recognition Credits Section II

49. IRS concerned with tax or “Hard” Credit, but what about the University’s Soft, Memo and Other Credit? These Credit types are only for recognition purposes. No tax implications whatsoever. • Soft • An alumna makes a donation and wants her partner to be recognized for the gift as well: the partner gets Soft Credit while the alumna is given Hard Credit. • Memo • A partner in a law firm, also a Cornell alumnus, suggests that the partnership send Cornell a contribution from the Firm’s account: the partnership gets Hard Credit while the alumnus is given Memo Credit. • Other • A Lecturer agrees to give a speech and normally is compensated $20K. She decides not to accept the cash and wants gift credit instead: Lecturer is given Other Credit. Can be complicated depending on the situation, questions should be referred to David J. Pinker, djp39@cornell.edu. Refer to Understanding the PeopleSoft Gift System for further clarification.

50. This was a handout that summarizes gift types, tender types and other helpful information when reading records in PeopleSoft. If you would like a copy, please contact Tonya Reynolds, tmr44@cornell.edu, 254.6163.