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  1. #1
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    Default Hey- 501.c.3 gurus- some questions- please?

    Hey-- for any of you who have knowledge of the regulations surrounding the activities of 501.c.3 non-profits- a couple of questions about donated horses...

    How long does the non-profit have to keep the horse in their possession prior to selling them, in order to keep things legal? Is there a threshold on valuation that comes into play?

    How many horses can be donated at once by one individual or entity- does it matter? This is only with reference to the IRS allowing the deduction.

    How do the horses need to be appraised, and by an individual with what qualifications?
    When someone shows you who they are, BELIEVE them- Maya Angelou
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  2. #2
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    Quote Originally Posted by ASB Stars View Post

    How long does the non-profit have to keep the horse in their possession prior to selling them, in order to keep things legal? Is there a threshold on valuation that comes into play?
    As far as I am aware, I don't think there is any set time limit an organization has to keep a horse. There are several non-profits in my state, at least, that, if a horse doesn't fit into their program, they will put it up for sale. Now, as for the amount of time until it sells...that depends on the economy/if the horse fits someone else's needs.
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  3. #3
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    OK- here is what I am trying to clear up, on this part of the issue-- if a 501.c.3 takes in a horse for a donor, is there a period of time that the horse must reside on premise in order for the deduction to be vaild? I have been told that there is, and that this time frame is six months. I figure that there is no better place to get this information fast than HERE!

    TIA!
    When someone shows you who they are, BELIEVE them- Maya Angelou
    www.americansaddlebredsporthorse.net
    http://www.asbsporthorse.blogspot.com/



  4. #4
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    Default

    Your best bet is to contact your tax person, but if you can't here are some guidelines from someone who works for a school that has a donation program and is a 501.c

    **Disclaimer - I am not in the financial department and I am not an accountant or tax expert. This is the way it has been explained to me by my advancement office.

    1) The institution MUST retain ownership for 3 years for the donation to be legal. If they sell the horse before then, it must be for the appraised value and the donor must then pay taxes on the appraised value. The institution may opt to GIVE the animal away at no charge.

    2) The above relates to any animal that is valued above $5,000. Anything below $5K can be resold at any time.

    3) There is no limit that I am aware of on multiple donations. I have had several.

    4) Your best bet on an appraisal is someone who has had the training to do equine appraisals and is certified to do a legal appraisal. They take into account the current market value for a horse of similar age, training, etc, the current condition of the horse, any stable issues it might have, and things like that.

    Do all institutions actually follow these requirements? No. Do your homework and find out what you are getting into and how the institution has handled donations in the past.



  5. #5
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    There are no national-level rules about things like how long a horse would have to be in the rescue's possession. That's because the regulations regarding 501(c)3 status have absolutely nothing to do with the organizations' purposes, ONLY with their tax status. The only thing the IRS cares about is "Is the organization in fact operating on a nonprofit basis?" They would care ONLY if the proceeds from selling the horse were not put back into the organizations operational budget in some manner or is used in some other way consistent with THAT INDIVIDUAL NFP'S PUBLISHED GUIDELINES. Because as we've said on here before, the IRS doesn't actually care what the organization does for a living, just as long as it's not being run to profit private owners or shareholders.

    The rules Tackpud describes are unique to that organization. Presumably they were written into its charter/paperwork filed with the IRS indicated how this particular organization runs. Another group could have an ENTIRELY different system for dealing with donations.

    For example, I work for a museum and when you donate an object you sign a paper that says we can do whatever we want with it--display it, store it, give it away, sell it, destroy it, whatever legitimate use we have for it. (We have donated items I'm given for the education collection precisely because we don't have to worry about damaging or destroying them-the curator's determined they have no collections value. I can break them, bury them in dirt, let kids play with them, etc.) You are signing away ALL your rights to that item effective when your pen leaves the paper. Very, VERY few museums will now accept conditional gifts of any kind because it creates an enormous, expensive burden up to and including having to go to court to remodel or move to a new building if the gift was conditional on, say, a painting being "Permanently displayed in the Smith Gallery." It has happened, and sometimes a judge will overturn the DoG or the will in question, but sometimes they won't. So we require that a donation be a DONATION. We could set fire to the item five minutes after you walk out the door, you'd still get any applicable deduction.

    If a horse rescue has a time limit, it will be in their charter/guidelines/paperwork and it SHOULD be in the contract signed on donation, as would be their rules for determining the horse's value for tax purposes, and the agreed-upon value of the specific horse. If you sign and get a reciept valuing the horse at $2500, that's your deduction. Doesn't matter if the rescue gets more or less for it on resale.



  6. #6
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    Thanks very much for taking the time to give such detailed answers, guys- I appreciate it!

    These horses are being donated to a school. The school has a riding program, as part of its curriculum, but it is not a school where this is a primary focus. Therefore, I am questioning what use they have for broodmares, and yearlings, for example. If they are only acting as a conduit, and are selling them at *community* sales immediately after receiving them, I wonder how this is reflected in their charter, etc.

    There is a professional involved who actively solicits the donation of horses, and then participates in selling them for the school. I am not alleging wrong doing- I have no idea what the details are on this. However, this professional wouldn't walk across the street for you, if he was not being compensated, IMHO. Therfore, I am suspicious.

    Given the foregoing, I am trying to better understand the process that goes with this, such that I can determine what may actually be transpiring. I have also decided it may make a worthy subject for an article- not just about this school, but about the practices of a few others, as well.
    When someone shows you who they are, BELIEVE them- Maya Angelou
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    http://www.asbsporthorse.blogspot.com/



  7. #7
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    Quote Originally Posted by Tackpud View Post

    1) The institution MUST retain ownership for 3 years for the donation to be legal. If they sell the horse before then, it must be for the appraised value and the donor must then pay taxes on the appraised value. The institution may opt to GIVE the animal away at no charge.
    WOW! I know so many 501(c)3 in violation of this one ^ I wonder if there's some sort of loophole?

    ETA: I am sure the IRS would want to know if a non-profit organization was taking in horses (and offering tax write-offs) NOT suited for their program for which they have 501(c)3 status.....for the sole purpose of turning around to sell ... pocketing the money...NOT for the program.
    Last edited by HydroPHILE; Apr. 6, 2010 at 04:12 PM.
    If wishes were horses then beggars would ride...
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    Quote Originally Posted by talkofthetown View Post
    As in, the majikal butterfly-fahting gypsy vanners.



  8. #8
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    501c3 is only the federal tax filing status. The primary concern is that taxes are either being paid or exempt per the tax laws.

    There are also non-profit filings for states or regions. These filings might have a whole other list of do's and don't. So check with the AG's office.

    I've never heard of retaining ownership of horse over $5K. From the onfo that I have- horses are akin to any other property- it's the selling/donating in terms of tax exemption thats the focus.

    Also 501c3 can 'hire' people. So it's plausible that the professional is either contracted or hired to perform certain duties to fulfill some requirement of the 501c3 organization. Of course there are ethics rules involved too. You would need to know more specific details as to this professional's relationship with the 501c3 to really be sure they are on the up and up.



  9. #9
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    I had heard about the necessity of retaining a horse over "X" value, for a period of time. This is to keep these institutions from giving a big hinking write off to a patron, and then offing the horse for a few hundred dollars, theorhetically...
    When someone shows you who they are, BELIEVE them- Maya Angelou
    www.americansaddlebredsporthorse.net
    http://www.asbsporthorse.blogspot.com/



  10. #10
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    Default

    As others have said, the 501(c)3 is a tax designation. It may be that this person has been hired by the school to solicit donations and in the event the horse isn't suitable for their purposes, to sell the horse. Just because they're non-profit does not mean they don't need the money or shouldn't benefit from selling the horses. IMO, the way they go about doing this could either be ethically or unethically, but as long as their taxes are on the up and up, its not the goverment's problem (unless they're doing something else illegal).
    A lovely horse is always an experience.... It is an emotional experience of the kind that is spoiled by words. ~Beryl Markham



  11. #11
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    Default

    In this case, he appears to act as a "bird dog" for them, soliciting donations from folks, and, in the case of breeders, trying to get everything on the farmsent to the school. Obviously, he is aware that most of the stock is not appropriate for use for children. Hence, my thought that he just gets what they can turn into green- one way, or the other.
    When someone shows you who they are, BELIEVE them- Maya Angelou
    www.americansaddlebredsporthorse.net
    http://www.asbsporthorse.blogspot.com/



  12. #12
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    I think the question was: What happens to the donor's tax deduction if the organization sells the donated horse?

    If so, here is the answer:


    According to the 2010 Federal Tax handbook:

    If someone donates property to an exempt organization that is unrelated to the donee's exempt function (i.e. art to a church or a horse to a school) and takes a FMV (fair market value) deduction on their tax return for property and the organization sells the property which is valued at over $5000 (1) in the year of contribution - then the donor can only take a deduction for his basis in the horse. An amended return must be filed

    If the organization sells or disposes of the property (2) after the year of contribution but within 3 years beginning with the contribution date, the donor includes in income the amount of the claimed deduction in excess of his basis.

    Now...these rules do not apply if the organization makes "proper certification" to the IRS.

    So...as a donor, I might be wary of donating to this program. The guys sounds a little shady.



  13. #13
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    Quote Originally Posted by ASB Stars View Post
    In this case, he appears to act as a "bird dog" for them, soliciting donations from folks, and, in the case of breeders, trying to get everything on the farmsent to the school. Obviously, he is aware that most of the stock is not appropriate for use for children. Hence, my thought that he just gets what they can turn into green- one way, or the other.
    So long as the money goes into their operating funds and he is not making a PERSONAL profit off it, that isn't actually wrong or illegal unless something in the individual organization's paperwork prohibits it (for example if there's a clause that says they can ONLY accept horses for trial use in the program.) Otherwise it's no different than taking donations of antiques to be sold in a fundraising rummage sale.

    One of the biggest misconceptions is that "non-profit" means NFP organizations aren't allowed to make a profit. Even some people in my Accounting for Non-Profits class had this problem in our first project! The object is NOT for the balance sheet to come out at 0 or in the red. If anything a good NFP will operate at a profit. The difference is the profit has to go to either the organization's mission (if it's Feed the Children, that's feeding children) or its operating costs (paying staff, office expenses, etc.) Each NFP will have different rules about where they can raise money and what they intend to do with it. You would be amazed at how high a percentage of many big organizations' budgets goes to salary and operating costs.

    In this case, from what little I get here--you're saying they do something like take a donated horse valued at $5000, give that as the write-off, then sell it quickly for a lot less. That seems like a fairly impractical way of doing business, but the person in trouble there is not going to be the NFP (unless they are KNOWINGLY writing fraudulent gift reciepts) but the donor taking the writeoff. They're the ones stiffing the IRS, and that's all the IRS cares about. The NFP could quite easily argue that the horse's APPRAISED value versus what it sells for can be radically different. The most the IRS would likely do is tell them to not issue a reciept until they've resold the horse and then to give it for value sold, or to hire independent appraisers to set the value. The person getting the nasty audit and back taxes is the donor who took a deduction to which they were not entitled.

    The resale itself? Kinda a hard way to do it in this market, but if there's nothing in the business plan that forbids it, there's nothing wrong with that part. NFPs are like any other business, unless they are totally taxpayer-supported or they have the mother of all endowments, they have to make money first or they go out of business.



  14. #14
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    Basically, my take on this situation, after reading the responses... is that the farm owners are really the ones who are going to get dinged. The Bird-Dog is luring these breeders in by promising them large tax write offs. They're donating "culls" at a market value of say $5000 a head (instead of sending them to auction themselves and realising $500 a head less commission), then the school is shipping them to brokers at $500 a head and making money on volume turnover... the breeders are the ones who are "cheating" on their deductions, not the school.
    ::If I was wrong don't you think I would know it?::



  15. #15
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    I don't disagree with your premise, but if the "basis" is high enough- the money that they actually have in the horses- then, they aren't actually doing anything wrong, are they?

    In this case, it is a very, very challenging situation, with family members working against one another-- largely, in the case of the person working with the bird dog-- for greed. As in "this is MY inheritance these horsese are eating!"

    This is how nice horses end up in not so nice places, to be sure. The school in question has 90 odd horses in their name, according to the ASHA website. I tend to believe that they are simply not transferring them, and thereby making it look like the horses with higher values-- who should be in their possession for two years-- are still there. I don't think so
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    http://www.asbsporthorse.blogspot.com/



  16. #16
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    Quote Originally Posted by ASB Stars View Post
    I don't disagree with your premise, but if the "basis" is high enough- the money that they actually have in the horses- then, they aren't actually doing anything wrong, are they?
    Well, unless you are pasture breeding with your own stud you will have an average investment of $5000 per foal when it hits the ground, so yes, it is reasonable for the farm to place a decent value on a youngster to reflect that investment. However, if we are talking "fair market value" then you and I both know many of those same mares and colts would sell at auction for much much less. If they didn't then there would be little advantage to donating them en masse.

    As for whether they are doing anything wrong... we all know that laws, especially tax laws, don't always reflect what seems right or wrong.
    ::If I was wrong don't you think I would know it?::



  17. #17
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    Right and wrong have nothing to do with 501(c)3 status unless we're talking whether it's wrong to cheat on your taxes.

    The only way to know if a particular situation is in violation of their nonprofit status is to get their paperwork like annual reports, which they must disclose if they're taking public money, and see if the known sales are in conflict with anything in their own regulations. If it's not, nothing wrong is going on as far as NFP status is concerned. If there's nothing specifically prohibiting selling the horses or selling them in a particular market (ie brokers, auctions, etc) then there's nothing wrong with their doing it. So long as it's being done in the organization's name. If this is an employee profiting on the side, he's the one in trouble.

    If there IS something explicitly prohibiting it, then the IRS would review it. But I will warn you, it would not be any judgement about where the horses were being sold in terms of "OMG SLAUGHTER IS BAD!" It would JUST be "Are they violating the terms of their status as they filed for it?" If yes, the IRS could yank their tax status. All the IRS cares about is are they entitled to a cut and if so, are they getting it.



  18. #18
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    Quote Originally Posted by ASB Stars View Post
    I don't disagree with your premise, but if the "basis" is high enough- the money that they actually have in the horses- then, they aren't actually doing anything wrong, are they?

    :
    If you are talking about the donor doing anything wrong on their taxes the answer is no. If they have a high enough basis, which would include purchase price or breeding fees, plus any expenses that were not written off in the first place, there should be no problem on their taxes.

    The problem exists when say someone buys a horse for like $2500 and then puts a FMV on the horse for donation purposes of like $15000 and tries to write it off.

    I don't see that the organization is doing anything "technically" wrong; however, again if they are just taking horses in to sell then I, as a donor, would be wary that my "donation" would end up in a place I didn't expect him to.
    Last edited by asb2517; Apr. 7, 2010 at 12:56 PM. Reason: I can't spell today!!



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