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Monthly Archives: October 2018

The fine art of valuing donated property

Erin Mirante0 Comment


Not-for-profits often struggle with valuing noncash and in-kind donations. Whether for record-keeping purposes or when helping donors understand proper valuation for their charitable tax deductions, the task isn’t easy. Although the amount that a donor can deduct generally is based on the donation’s fair market value (FMV), there’s no single formula for calculating it.

FMV basics

FMV is often defined as the price that property would sell for on the open market. For example, if a donor contributes used clothes, the FMV would be the price that typical buyers pay for clothes of the same age, condition, style and use. If the property is subject to any type of restriction on use, the FMV must reflect it. So, if a donor stipulates that a painting must be displayed, not sold, that restriction affects its value.

According to the IRS, there are three particularly relevant FMV factors:

  1. Cost or selling price. This is the cost of the item to the donor or the actual selling price received by your organization. However, note that, because market conditions can change, the cost or price becomes less important the further in time the purchase or sale was from the contribution date.
  2. Comparable sales. The sales price of a property similar to the donated property can determine FMV. The weight that the IRS gives to a comparable sale depends on the:
    • Degree of similarity between the property sold and the donated property,
    • Time of the sale,
    • Circumstances of the sale (was it at arm’s length?), and
    • Market conditions.
  3. Replacement cost. FMV should consider the cost of buying or creating property similar to the donated item, but the replacement cost must have a reasonable relationship with the FMV.

 

Businesses that contribute inventory can generally deduct the smaller of its FMV on the day of the contribution or the inventory’s basis. The basis is any cost incurred for the inventory in an earlier year that the business would otherwise include in its opening inventory for the year of the contribution. If the cost of donated inventory isn’t included in the opening inventory, its basis is zero and the business can’t claim a deduction.

Important reminder

Even if a donor can’t deduct a noncash or in-kind donation (for example, a piece of tangible property or property rights), you may need to record the donation on your financial statements. Recognize such donations at their fair value, or what it would cost if your organization were to buy the donation outright. Contact us for more information.

© 2018

Volunteers are assets nonprofits must protect

Erin Mirante0 Comment

How much are your volunteers worth? The not-for-profit advocacy group Independent Sector estimates the value of the average American volunteer at $24.69 an hour. Volunteers who perform specialized services may be even more valuable.

Whether your entire workforce is unpaid or you rely on a few volunteers to support a paid staff, you need to safeguard these assets. Here’s how.

1. Create a professional program

“Professionalizing” your volunteer program can give participants a sense of ownership and “job” satisfaction. New recruits should receive a formal orientation and participate in training sessions. Even if they’ll be contributing only a couple of hours a week or month, ask them to commit to at least a loose schedule. And as with paid staffers, volunteers should set annual performance goals. For example, a volunteer might decide to work a total of 100 hours annually or learn enough about your mission to be able to speak publicly on the subject.

If volunteers accomplish their goals, publicize the fact. And consider “promoting” those who’ve proved they’re capable of assuming greater responsibility. For example, award the job of volunteer coordinator to someone who has exhibited strong communication and organization skills.

2. Keep them engaged

A formal program won’t keep volunteers engaged if it doesn’t take advantage of their talents. What’s more, most volunteers want to know that the work they do matters. So even if they must occasionally perform menial tasks such as cleaning out animal shelter cages, you can help them understand how every activity contributes to your charity’s success.

During the training process, inventory each volunteer’s experience, education, skills and interests and ask if there’s a particular project that attracts them. Don’t just assume that they want to use the skills they already have. Many people volunteer to learn something new.

3. Make it fun

Most volunteers understand that you’ll put them to work. At the same time, they expect to enjoy coming in. So be careful not to make the same demands on volunteers that you would on employees. Also, try to be flexible when it comes to such issues as scheduling.

Because many volunteers are motivated by the opportunity to meet like-minded people, facilitate friendships. Newbies should be introduced to other volunteers and assigned to work alongside someone who knows the ropes. Also schedule on- and off-site social activities for volunteers.

4. Remember to say “thank you”

No volunteer program can be successful without frequent and effusive “thank-yous.” Verbal appreciation will do, but consider holding a volunteer thank-you event.

© 2018

Analyze your health plan’s electronic security to comply with HIPAA

Erin Mirante0 Comment

If you’re an employer that sponsors a health care plan, you may worry about inadvertently violating the Health Insurance Portability and Accountability Act — commonly known as HIPAA. But you should also bear in mind that there is a formal requirement for ensuring electronic data security. Specifically, sponsors of most plans must do a risk analysis to comply with what’s called the HIPAA security rule.

Pertaining to PHI

The HIPAA security rule describes the required risk analysis as “an accurate and thorough assessment of the potential risks and vulnerabilities to the confidentiality, integrity, and availability of electronic protected health information.”

In this context, a “vulnerability” is a flaw or weakness in a security system that could be exploited (intentionally or accidentally) to breach security. “Risk” is determined by assessing both the likelihood that a vulnerability will be exploited and the extent of the resulting impact on the health plan.

In performing the risk analysis, it’s important to remember that the HIPAA security rule applies only to electronic protected health information (PHI). Employers with insured plans may limit their compliance obligations by minimizing the amount of electronic PHI they create, receive, maintain or transmit. For example, you might structure your plan so individually identifiable information, such as claims data, is maintained exclusively by your insurer.

Also, enrollment information created by the plan sponsor — for instance, when you administer open enrollment — doesn’t constitute PHI because that information isn’t collected on behalf of the plan. Thus, the risk analysis for a small insured plan can be much simpler than that for a large, self-insured plan where the sponsor performs administrative functions.

Surveying your systems

As a first step, identify all hardware, software, facilities, workstations and information systems used in storing, receiving, maintaining or transmitting electronic PHI. You may be surprised at the amount of electronic PHI you have. Next, identify and assess security measures currently in place to protect the electronic PHI, noting specific vulnerabilities and risks. Finally, determine what, if any, additional security measures are needed to respond to the identified vulnerabilities and risks.

It’s particularly important to document completely each step of the risk analysis, including how the health plan reached its conclusions regarding vulnerabilities, risk assessment and security measures. The security rule doesn’t require perfect security but, in the event of a security breach, a health plan must be able to explain why its security measures were appropriate.

Undertaking the process

Note that the HIPAA security rule doesn’t apply to a health plan that has fewer than 50 participants and is self-administered by the employer that established and maintains the plan.

If the rule does apply to you, keep in mind that it doesn’t specify how often employers should conduct a risk analysis. Undertaking the process annually or whenever there’s a major change to your health plan or IT systems is generally recommended. For further information, please contact us.