Gift Valuation and Crediting – An Overview

What is the real value of planned gifts in accomplishing charitable giving goals?

While some organizations have created their own methodologies for raising needed funds to meet the organization’s mission, there are no widely accepted standards that are consistently used within the charitable community for counting and valuing planned gifts.

Before exploring counting and valuing planned gifts, a general overview of the basics of a charity organizations fundraising planning including capital campaigns is important.

To be successful, a charity needs to create a fundraising plan. The plan should involve consulting with all of the appropriate stakeholders and should include:

1. The Goal - How much money the organization needs to raise in order to carry out the activities of the organization.
2. The Mission - The goal answers the question, “How much money is needed.” The mission answers the question, “Why are the funds needed?”  What is the organization’s mission?  What does the organization plan to do with the money raised?  What is the operating budget?
3. The Tactics - Once the amount to raise is determined and why it is needed, how to raise the full amount becomes the focus of the plan. What tactics will be used to raise the amount needed this year?  Next year?  The year after? Some common tactics include:

• Individual Giving – Asking major donors to make gifts to your organization.
• Major Donor Groups – May include board giving, a finance or development committee, etc.
• Events – Both large and small.
• Direct Mail.
• Telemarketing.
• Online and E-Giving.
• Grants – Foundations, Corporate, Government.
• Corporate Giving Programs.
• United Way Fundraising.
• Minor Donor Groups- A minor donor program is just like a major donor program, only it is focused on small-dollar donors.
• Participatory Fundraising – Like walk-a-thons.
• Annual Giving and Multi-Year Giving Campaign.

 

4. The Timeline - Many organizations stumble here – they come up with a solid budget, have a great mission, and draw up a plan that includes a solid group of fundraising tactics, but fail to set timelines, and thus never seem to get things done.

Whichever type of timeline is used, include a timeline that will force those planning the fundraising campaign to critically think through the fundraising decisions, and provide invaluable guidance on activities as the year progresses.

In addition to the annual fund raising plan, a charity may include a fund raising campaign, frequently called a capital campaign which is an organized effort to raise a specified amount of money for a particular purpose in a specified period of time.

While gift counting and crediting may apply to all types of fundraising, the capital campaign is generally where the issues of whether and when to count gifts received and how much value will be credited to gifts in the campaign occur and cause the most consternation in a development office.

To address these important issues, there are several researched and documented approaches.

The following is a summary of valuation rules and standards that have been developed and are either required (IRS, FASB) or are optional (CASE, PPP):

• U.S. Treasury Regulations dictate the methodology for determining the charitable deduction for tax purposes.
• The Financial Accounting Standards Board (FASB) provides rules for the accounting of planned gifts.
• The Council for Advancement and Support of Education (CASE) provides standards for counting gifts in campaigns for purposes of donor recognition.
• The Partnership for Philanthropic Planning (PPP) developed a method to estimate the real value of funds raised through a planned gift program and to compare the relative value of alternate planned gift approaches to the charitable organization based on the premise that accounting, counting and tax deduction measurements do not truly reflect the value a planned gift.

Differences Among the Standards

The primary differences among IRS regulations, FASB, CASE standards, and PPP guidelines are:

1. IRS regulations specifically apply to determining the charitable deduction value.
2. FASB 116/117 and 157 rules specifically apply to determining the liability for split interest gifts.
3. CASE standards include outright or irrevocable gifts only; the PPP guidelines include revocable gifts as well as outright and irrevocable gifts.
4. CASE standards focus on deductible transactions and valuation of gifts based on IRS guidelines; the PPP guidelines include all meaningful development activity, including planned giving, and gifts are reported as face value numbers.

For example, a nonprofit might choose to use the CASE standards for accounting purposes and for comparing the value of funds raised across organizations or years, but choose to use the PPP guidelines for internal reports on progress toward campaign goals. (See CASE and PPP calculation examples)

The advantage of the CASE approach is that it offers a straightforward set of unified results, and the results reported are comparable across organizations. The advantage of the PPP approach is that progress can be reported in different categories, including outright gifts, irrevocable deferred gifts and revocable gifts.

Use of the PPP guidelines also allows the organization to recognize donors for their deferred gifts at the face value of the gift and at the time the gift is committed.

Purpose and Consistency

When choosing the type of report that is most useful for a given situation, the Association of Fundraising Professionals (AFP) emphasizes that it is important to be clear about the purpose of the report—whether it be accounting based on generally accepted accounting principles; valuation (a reflection of the present value of the ultimate purchasing power of the gift); summarizing activities; results and progress toward goals; or crediting (providing appropriate recognition to donors for their gifts).

It is also important to be consistent in the type of reporting used over time. For example, if the PPP guidelines are used for progress reports to the board, the same report format should be used throughout the reporting period. If CASE standards are used for accounting and valuation of gifts for management purposes, they should be used consistently from year to year.

Resources

CASE Standards & Management Guidelines for Educational Fundraising

http://store.case.org/PersonifyeBusiness/Store/ProductDetails.aspx?productId=110490

PPP Standards & Best Practices

http://www.pppnet.org/#!ethics-standards/c16z3

PPP Guidelines for Reporting and Counting Charitable Gifts

http://media.wix.com/ugd/2ec486_1cf05006f752475c828b789a595ac771.pdf

PPP Valuation Standards for Charitable Planned Gifts

http://www.pppnet.org/#!v-s-c-p-g/c1a5b

IRS Applicable Federal Rate

http://www.pgcalc.com/support/irs-discount-rate.htm

FASB Liabilities for Planned Gifts

http://info.pgcalc.com/blog/bid/141816/Liabilities-for-Planned-Gifts-Your-Role

http://kb.pgcalc.com/charitable-remainder-annuity-trust-crat/fasb-liabilities-and-fasb-157-fair-value-measurements

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PG CALC INC                                                                                                                  June 16, 2015

Summary of Benefits                                                                                                        CASE Valuation

4.7% Charitable Gift Annuity

ASSUMPTIONS:

Annuitants                                                                             [11/9/1945]  70

                                                                                          [10/13/1943]  72

Date of Gift                                                                                    6/16/2015

Principal Donated                                                                          $50,000.00

Cost Basis of Property                                                                    $20,000.00

Payout Rate from ACGA2012 Table                                                           4.7%

Payment Schedule                                                                            quarterly

                                                                                                      at end

BENEFITS:

Charitable Deduction                                              $15,283.50

Annuity                                                                                       $2,350.00

       Tax-free Portion                                                                      $705.00

       Capital Gain Income                                                              $1,057.50

       Ordinary Income                                                                      $587.50

Total reportable capital gain of $20,829.90 must be reported over 19.7 years, the expected lifetimes of both donors.

After 19.7 years, the entire annuity becomes ordinary income.

Basic Gift Illustrations                                                                             IRS Discount Rate is 2%

These calculations are for illustration purposes only and should not be considered legal, accounting, or other professional advice.  Your actual benefits may vary depending on several factors, including the timing of your gift.
 

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