1. Mind Map Created/Presented by Jamie L Williams, CB Owner/manager Lenore, Inc
2. MIND MAP OBJECTIVE:
   1. To clearly present the concepts of the topic in review in mind map format for ease of understanding, implementation, and procedure development
      1. To use as a study and reference guide
3. REL. OCT 2020
4. Tools to prepare fair value measurement:
   1. GETTING A CLOSER LOOK: Review and consider which of the several approaches to fair value measurement is the best match to the availablility of information inputs for the donated item under review:
   2. What?
      1. What is fair value?
         1. Fair market value is the price at which property would change hands between a willing buyer and a willing seller, neither having to buy or sell, and both having reasonable knowledge of all the relevant facts (Pub. 526)
   3. Why?
      1. Why is fair value important to nonprofit organizations?
         1. General
            1. Besides being a requirement for a fair and reasonable presentation of financial information to the public, fair value measurement is important to the donor or grantor of the donated good or property so that they can properly report it to the IRS and thereby reduce their tax liability for the amount of the donation.
         2. Specifics
            1. Special rules apply based on the type of property donated
            2. Special rules apply if you contribute:
            3. •
            4. Clothing or household items,
            5. •
            6. A car, boat, or airplane,
            7. •
            8. Taxidermy property,
            9. •
            10. Property subject to a debt,
            11. •
            12. A partial interest in property,
            13. •
            14. A fractional interest in tangible personal property,
            15. •
            16. A qualified conservation contribution,
            17. •
            18. A future interest in tangible personal prop-erty,
            19. •
            20. Inventory from your business, or
            21. •
            22. A patent or other intellectual property.
            23. Special rules apply if the property has increased in value
            24. If property increased in value since donor acquisition:
            25. If the donor contributes property with a fair market value that is more than their basis in it, they may have to reduce the fair market value by the amount of appreciation (increase in value) when figuring their tax deduction (Pub. 526)
            26. The donor's basis in property generally is what they paid for it.
            27. Different rules apply to figuring their deduction, depending on whether the property is:
            28. •
            29. Ordinary income property, or
            30. •
            31. Capital gain property
            32. If property did not increase in value since donor acquisition:
            33. If a donor contributes property to a qualified organization, the amount of the charitable contribution is generally the fair market value of the property at the time of the contribution (Pub. 526)
            34. Fair value required when preparing yearly financial statements
            35. Fair value required when preparing IRS Form 990
            36. Fair value measurement is important when property valuation records are not available from donor
            37. Penalties are assessed on the donor for overstatement of the value of donated goods or property:
            38. (Pub. 526)
   4. How to?
      1. Answer these questions regarding the donated item
         1. What type of item is being donated?
            1. Special rules apply based on type of property donated (see list above)
            2. Special rules apply if the property has increased in value (see info above)
         2. What is the value of the item being donated?
            1. The FMV is generally the donor's basis in the good or property (i.e. the cost of the good or property at the time of acquisition/purchase)
            2. If no valuation information from donor or if the property is subject to increase in value is available, where can inputs be found?
            3. Are there observable inputs available in the active markets?
            4. Are there observable inputs available in inactive markets?
            5. Are there inputs available from estimated cash flows and discounts rates?
            6. Are there inputs available from existing assets, their basis, and/or replacement estimates?
      2. Determine which approach to fair value measurement is best based on inputs available
         1. 🚣 Market Approach - using available inputs from active to inactive markets
         2. 🚣 Income Approach - using available inputs from estimated cash flows and discount rates
         3. 🚣 Cost Approach - using available inputs from existing assets, their basis, and replacement estimates
      3. Determine the level of hierarchy of fair value measurements to use the applicable approach
         1. 🙂 Level 1:
         2. At this level, the information sources are from directly observable quoted prices of identical items in an active market. This is where the most reliable evidence of fair value is located.
         3. 🙂 Level 2:
         4. At this level, the information sources are from direct and indirectly observable information derived from:
            1. Similar items (not identical to the donated item) in active markets
            2. Similar or identical items (not identical to the donated item) in inactive markets
            3. Inputs other than quoted prices
         5. 🙂 Level 3:
         6. At this level, the information sources are derived from unobservable inputs. This is the lowest level where inputs cannot be found in active or inactive markets, that is, no observable inputs exist. The means inputs will have to obtained from the organization’s own data adjusted for other available information like prices obtained from an appraiser or gathered from the cost of the donated item’s component parts.
      4. Determine the FMV as of the date of the contribution based on the approach chosen
         1. Determine FMV as explained by the IRS: Determining the value of donated property would be a simple matter if you could rely only on fixed formulas, rules, or methods. Usually it is not that simple. Using such formulas, etc., seldom results in an acceptable determination of FMV. There is no single formula that always applies when determining the value of property. This is not to say that a valuation is only guesswork. You must consider all the facts and circumstances connected with the property, such as its desirability, use, and scarcity.
      5. Recognition: Record the donated goods or property on the books and complete the required filings
         1. Required forms for the nonprofit organization:
         2. 📝 IRS Form 1098-C Contributions of Motor Vehicles, Boats, and Airplanes
         3. 📝 IRS Form 8283* Noncash Charitable Contributions for items over $500
         4. *The nonprofit organization must complete and sign Part IV of Section B
         5. 📝 A Contemporaneous Written Acknowledgement (due to the donor annually by January 31st) ~ For donations of $250 and over, and ~ For donations of $75 and over, where goods/services were provided by the nonprofit organization
            1. Penalty for failure to provide Contemporaneous Written Acknowledgement (CWA):
            2. (Pub. 1771)
         6. Required forms for the donor:
         7. 📝 IRS Form 1040 Schedule A Itemized Deductions
         8. A qualified appraisal must be included with the above form for items over $5,000
         9. 📝 IRS Form 1098-C (Copy B) Contributions of Motor Vehicles, Boats, and Airplanes
         10. 📝 IRS Form 8283 Noncash Charitable Contributions (with the assistance of the nonprofit organization) for items over $500
   5. Applications?
      1. Capital Gain Property (A Case Example)
         1. Data taken from: 990 (2018) Schedule B Part II
         2. Answer these questions regarding the donated item
            1. What type of item is being donated?
            2. Special rules apply based on type of property donated (see list above)
            3. Special rules apply if the property has increased in value (see info above)
            4. Virtual currency is considered noncash property and a capital gain asset in the hands of the taxpayer and thereby is subject to fair value measurement
            5. What is the value of the item being donated?
            6. The FMV is generally the donor's basis in the good or property (i.e. the cost of the good or property at the time of acquisition/purchase)
            7. If no valuation information from donor or if the property is subject to increase in value is available, where can inputs be found?
            8. Are there observable inputs available in the active markets?
            9. Are there observable inputs available in inactive markets?
            10. Are there inputs available from estimated cash flows and discounts rates?
            11. Are there inputs available from existing assets, their basis, and/or replacement estimates?
         3. Determine which approach to fair value measurement is best based on inputs available
            1. 🚣 Market Approach - using available inputs from active to inactive markets
            2. 🚣 Income Approach - using available inputs from estimated cash flows and discount rates
            3. 🚣 Cost Approach - using available inputs from existing assets, their basis, and replacement estimates
         4. Determine the level of hierarchy of fair value measurements to use the applicable approach
            1. 🙂 Level 1:
            2. At this level, the information sources are from directly observable quoted prices of identical items in an active market. This is where the most reliable evidence of fair value is located.
            3. 🙂 Level 2:
            4. At this level, the information sources are from direct and indirectly observable information derived from:
            5. Similar items (not identical to the donated item) in active markets
            6. Similar or identical items (not identical to the donated item) in inactive markets
            7. Inputs other than quoted prices
            8. 🙂 Level 3:
            9. At this level, the information sources are derived from unobservable inputs. This is the lowest level where inputs cannot be found in active or inactive markets, that is, no observable inputs exist. The means inputs will have to obtained from the organization’s own data adjusted for other available information like prices obtained from an appraiser or gathered from the cost of the donated item’s component parts.
         5. Determine the FMV based on the approach chosen as of the date of the contribution
            1. Determine FMV as explained by the IRS: Determining the value of donated property would be a simple matter if you could rely only on fixed formulas, rules, or methods. Usually it is not that simple. Using such formulas, etc., seldom results in an acceptable determination of FMV. There is no single formula that always applies when determining the value of property. This is not to say that a valuation is only guesswork. You must consider all the facts and circumstances connected with the property, such as its desirability, use, and scarcity.
         6. Recognition: Record the donated goods or property on the books and complete the required filings
            1. Required forms for the nonprofit organization:
            2. 📝 A Contemporaneous Written Acknowledgement (due to the donor annually by January 31st)
            3. If the virtual currency is subsequently sold:
            4. 📝 An organization must file Form 8282 if, within 3 years of receiving property for which it was required to sign a Form 8283, it sells, exchanges, consumes, or otherwise disposes of the property. The organization must also send the donor a copy of the form
            5. Required forms for the donor:
            6. 📝 IRS Form 1040 Schedule A Itemized Deductions
            7. 📝 IRS Form 8283 Noncash Charitable Contributions (with the assistance of the nonprofit organization) for items over $500
            8. For virtual currency, filing of Form 8283 only required by donor (Part IV Section B does not need to be completed by the nonprofit organization)
            9. Publicly traded securities. Even if your claimed deduction is more than $5,000, neither a qualified appraisal nor Section B of Form 8283 is required for publicly traded securities that are (Pub. 561):
            10. •
            11. Listed on a stock exchange in which quo-tations are published on a daily basis,
            12. •
            13. Regularly traded in a national or regional over-the-counter market for which pub-lished quotations are available, or
            14. •
            15. Shares of an open-end investment com-pany (mutual fund) for which quotations are published on a daily basis in a newspa-per of general circulation throughout the United States.Publicly traded securities that meet these re-quirements must be reported on Form 8283, Section A
            16. A qualified appraisal must be included with the above form for items over $5,000 (not required)
            17. For virtual currency, a qualified appraisal is not required by donor (see info in the IRS Form 8283 section below)
      2. Resources
         1. From the IRS:
            1. IRS Publication 526 Charitable Contributions
            2. IRS Publication 561 Determining the Value of Donated Property
            3. IRS Publication 4303 A Donor's Guide to Vehicle Donation
            4. IRS Publication 1771 Charitable Contributions Substantiation and Disclosure Requirements
         2. From our blogs:
            1. Donated Goods and Property: Markets and Measuring Fair Value After Acquisition
            2. Donated Goods and Property: Fair Value Measurement To Honor The Gift and The Paperwork
            3. Donated Goods and Property: Comparing Approaches Using Fair Value Hierarchy
            4. Donated Goods and Property: From Receipt to Recognition