Q&A #102 – Do in-kind contributions of property count toward the $50,000 per year limit for Form 1023-EZ eligibility?

Question: I am I the process of forming a new nonprofit organization and I noticed that organizations are not eligible to use Form 1023-EZ if they project more than $50,000 per year in revenue in any of the next 3 years. We do not expect to receive cash donations exceeding that amount, but we do expect to receive significant contributions of supplies that we will use in our programs. Are donated supplies considered part of this $50,000 limit?

Answer: Yes, in-kind contributions of property (such as donated supplies) should be counted when determining whether your organization is within the $50,000 per year threshold for Form 1023-EZ eligibility. While the Form 1023-EZ instructions do not say this explicitly, the instructions use language that is very similar to the Form 990, and in that context “gross receipts” clearly include contributions of supplies and other property.

The eligibility worksheet in the Form 1023-EZ instructions explains that “Gross receipts are the total amounts the organization received from all sources during its annual accounting period, without subtracting any costs or expenses.” This is identical to the definition of “gross receipts” used for determining whether an organization is eligible to file the Form 990-N (which generally uses a similar $50,000 eligibility threshold), which is a clear indication that the IRS meant for the concept to be interpreted the same way.

It is very well established that in-kind contributions of property are reported as revenue for Form 990 purposes, since there are various parts of the Form 990 that require reporting of non-cash contributions, such as Part VIII (Line 1f) and, if applicable, Schedule M. Further, the IRS has specifically confirmed that in-kind contributions of property count as gross receipts for Form 990 purposes in this Q&A on the IRS website.

Planning Tip – When receiving donations of supplies or other property, resist the temptation to put your valuation of these in-kind contributions in the acknowledgment letter provided to the donor. It is the responsibility of donors to ascertain and document the value of their non-cash contributions for purposes of using the charitable deduction. The acknowledgment letter should simply describe the non-cash items that were donated, along with the date of the contribution (i.e. when ownership of the property was transferred) and other required information as described in Publication 1771, and, of course, your sincere appreciation for the donor’s generous contribution.  

As we’ve explained before, you only get one chance to decide whether you are eligible to use the Form 1023-EZ, as there is neither a requirement nor an opportunity to supplement the Form 1023-EZ later with a full Form 1023. Therefore, if you expect that your organization will receive more $50,000 per year in cash donations plus contributions of supplies and other property, then you should use the traditional Form 1023 instead of the Form 1023-EZ.

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