Is your organization prepared to accept stock and mutual fund gifts? Donations of appreciated securities the donor has held for a year or more are generally more beneficial than cash donations for both the charity and the donor.

Here are steps to take when considering and accepting gifts of securities:

       1. Review and follow your organization’s gift acceptance policy. If you don’t have one, consider adopting one.

       2. For publicly traded securities:

  • Set up a brokerage account if your organization doesn’t already have one.
  • Provide the donor with account details, including account name and number.
  • Decide if the donated securities should be sold or retained. Usually nonprofits sell donated securities shortly after receipt to minimize the risk of their value declining.

       3. For non-publicly traded stock, obtain and review documentation on it, including any restrictions on sale and conditions associated with it. Your nonprofit’s board should then decide whether it’s prudent to accept it.
      4. Keep records on the donated securities:

  • Date received
  • Company name
  • Ticker number (if any)
  • Number and type of shares donated
  • If your nonprofit subsequently sells the securities:
    • Date and value when sold. Any difference between the fair value when received and when sold is recognized as a realized gain or loss; however, any gain a charity recognizes on the sale is unlikely to be taxable.
    • The amount of any brokerage or similar fees, to be recorded as investment expenses.

      5. Send the donor an acknowledgement listing:

  • Your organization’s name
  • Date the securities were received
  • The company’s name and the number and type of shares, but NOT their value.
  • The donor (NOT the nonprofit) must determine the value for purposes of the donor’s charitable contribution deduction.
    • Publicly traded securities: Value is the average high and low price as of the donation date.
    • Non-publicly traded stock: If the charitable contribution deduction claimed is more than $10,000, the IRS requires that the donor have the stock valued by a qualified independent appraiser. (An independent appraisal maybe helpful to document value whether or not the charitable contribution deduction claimed exceeds $10,000.)
  • Either (as applicable):
    • A statement that no goods or services were provided by the organization in return for the donation; or
    • A description and good faith estimate of the value of any goods or services that the organization provided in return for the donation.

See IRS Publication 1771 for more information on donor acknowledgements.

      6. If the stock is NOT publicly traded and the donor claims a charitable contribution deduction exceeding $5,000 for it:

  • The nonprofit must sign the donee acknowledgement on IRS Form 8283; and
  • If, within three years after receipt, the nonprofit sells or otherwise disposes of the stock, the nonprofit must file IRS Form 8282 within 125 days after disposition.

Nonprofits should consult their legal and tax advisors with questions about specific donations of securities, especially if they are not publicly traded. Additional considerations for private foundations and donor-advised funds receiving donated securities are not covered in this article.

About the Author: Eleanor Evans is counsel at Hemenway & Barnes LLP. She has over 20 years’ experience representing nonprofit organizations in a diverse range of legal, governance and compliance matters.