The concept of “Related Use” continues to present an area of confusion, especially for nonprofits and relates directly to Tax Form 8282. Related-use is the stipulation that a nonprofit must utilize donations to further their defined mission. Form 8282 must be submitted to the IRS and donors when used to “report information about dispositions of certain charitable deduction property made within three years after the donor contributed the property.”1 This is of critical importance to a taxpayer/donor when contributing non-monetary charitable contributions. Should the sale or disposal of these donations not fall within the “related use” provision of the nonprofit, the taxpayer is only entitled to the cost basis of those items and prior year returns deducting the Fair Market Value of the donation require an amendment of the return. The exceptions to filing the 8282 are listed below:
- If the donated items have a value of less than $500, this does not need to be reported on the form 8282. Items constituting a set, such as a collection of books, dishware or components of a stereo system would be considered one single item.
- Form 8282 does not need to be filed if an item is consumed or distributed, without consideration, in fulfilling your purpose or function as a tax-exempt organization.
Let us drill down to the key words in scenario #2 above: in fulfilling your purpose or function as a tax-exempt organization.
The gray area emerges when the question is posed by the nonprofit, “What if we sell the item and use the profit to further our mission?” The American Society of Appraisers (ASA) has reported their standpoint on this issue. “If the mission of the recipient institution is not to sell property; thus, the donation is not considered a “related use” even if the funds generated are used for a “related use”.2
Nonprofits with missions of waste diversion are one way of providing a donation spot for materials that could be subsequently sold, recycled or donated to those in need, to fulfill condition #2 above. One example of an exceptional nonprofit handling waste diversion can be found in Portland, Maine—Ecomaine. According to their mission statement: “Ecomaine provides comprehensive long-term solid waste solutions in a safe, environmentally responsible, economically sound manner, and is a leader in raising public awareness of sustainable waste management strategies.”3 Modeling after this nonprofit, others could enter the waste management space and provide repositories for reusable or recyclable waste currently not accepted within the mission of some other nonprofits specializing in collecting deconstruction materials and property for resale or donation to low-income individuals, for example. Finding more avenues for donation of materials will help increase the waste diversion rates nationally.
