The Nonprofit FAQ

Can donated equipment be deductible for the donor?

Someone asked in soc.org.nonprofit: I am making a documentary film. My production group is a non-profit. People are willing to give equipment to us in return for a tax deduction. Is that legal? Putnam Barber [Editor of the Nonprofit FAQ] replied: If you have been recognized as a 501(c)(3) by the Internal Revenue Service, probably. That's what such recognition is about. If you haven't been, it's up to the donor to prove (if questioned by the IRS) that you meet the qualifications -- you must be an organization (donations to individuals are never deductible per se), and you have to meet the conditions included in 501(c)(3) for eligibility. Many donors, including nearly all foundations and corporate community-affairs departments, require 501(c)(3) status as a condition of making any donation. Sometimes donors are willing to countenance pass through arrangements where a recognized 501(c)(3) accepts the gift on behalf of another organization. In this case, the accepting organization must be sure that the gift and the act of passing it on to the ultimate recipient are consistent with its tax-exempt status (i.e., with the purposes and activities which it declares in its articles of incorporation and by-laws and which have been accepted as the basis of its organization and exemption by the relevant state and federal authorities). (For more on these arrangements, called "fiscal sponsorship," see http://www.idealist.org/if/i/en/faq/205-171/57-95. —Ed.) In general, it is recommended that if the amounts in question are small, the donors should forego the tax-deductions unless the situation is absolutely clear. They could easily spend more in accounting and attorney expenses than the tax-benefits they would receive. If the amounts in question are large, then you should probably explore both obtaining 501(c)(3) status for yourself and creating a formal pass-through arrangement with a suitable intermediary (an established film-training school, for example, that is already recognized as a 501(c)(3)). Which option will prove best for you will depend on what community resources you can call on to smooth the process and develop the necessary arrangements.