Calculating the Value of an Endowment

Charitable Endowment

Making charitable contributions provides funding for important projects and provides tax breaks but confusion can arise when calculating the value of an endowment. Understanding the terms and conditions of various contribution types can avoid issues arising for either the recipient or donor of the funds.

Calculating the Value of an Endowment

Different types of fund assessment procedures are governed by diverse guidelines set forth by the Internal Revenue Service (IRS). The IRS regulations maintain that the accurate and current fair market value of a charitable endowment for tax purposes is the sole responsibility of the donor. You can calculate the value yourself or seek the assistance of a Certified Public Accountant (CPA), tax advisor or a firm that specializes in charitable investments and endowments.

Determining the Date of Contribution

The first step in calculating the fair market value of the contribution is determining the date of contribution. The guidelines for determining the correct date for each contribution differ depending on the form in which the contribution is made.

  • Cash donations: Use the date on which the contribution is wired or mailed. Since you may be asked to provide evidence of these actions by the IRS, be sure to obtain receipts or signature confirmations to prove the dates of transfer.
  • Mutual fund shares: For this type of endowment, the IRS requests you use the precise date you lost control of the mutual funds. Since this is typically a lengthy process that normally takes weeks or months, this date is often difficult to identify. You can use the date the charity or organization receives the funds or the date the funds are deducted from the account as it appears on the financial institution statement and when the funds were no longer in control of the account holder. Simply instructing your CPA or broker to transfer mutual funds to an organization is not considered a completed transaction by the IRS.
  • Stock or bond certificates: For this type of contribution, the mailing date is used and should be backed up by receipts or signature confirmations. All supporting documents require completion for the transfer to be valid.
  • Stocks or bonds delivered electronically: Use the date the transfer is made and recorded on the books of the issuing entity or its transfer agent. This date is frequently difficult for the donor or the receiving charity to obtain. Donors may use the date that the beneficiary receives the endowment or the date the asset leaves the donor's account.

Assessing Fair Market Value

After you have confirmed the dates of the transactions, the fair market value of the contributions must be determined.

  • Cash donations: This is simply the face value of the check or wire transfer made to the receiving organization.
  • Mutual fund shares: Use the closing price or net asset value of the share on the date that the donated shares are no longer controlled by the charitable contributor and multiply it by the number of contributed shares.
  • Stock or bond certificates: Determine the average of the lowest and highest selling price of the stock or bond on the date the donation was transacted and multiply it by the number of donated units.
  • Stocks or bonds delivered electronically: Calculate the average of the high and low selling prices on the date of the funds transfer and multiply it by the number of units donated. Trade information history on high, low and closing prices is readily available on various financial reporting websites.

Learning More

If you are a regular contributor to philanthropic causes or donate to nonprofit organizations, it's a good idea to be adept at calculating the value of an endowment. However, there are various ways to be financially benevolent that may better suit your needs and benefit more humanitarian organizations which can be discussed with your CPA or financial advisor.

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Calculating the Value of an Endowment