D.3. Gifts of Tangible Properties
     Spring 1992

Development Policy and Administration Manual 
Chapter IV. Gift Administration Procedures 
Section D. Special Procedures for Various Types of 
           Noncash Gifts 
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                        GIFTS OF TANGIBLE PROPERTY


GIFTS OF TANGIBLE PROPERTY


Acceptance

Units within the University that are to have custody of gifts of
tangible property (e.g., horses, computers, works of art) are to
be consulted before such gifts are accepted.  For gifts of works
of art, both the donor and the affected University department
must understand that a transfer of ownership of the physical work
of art does not automatically transfer related intangible
property rights, such as copyright, which include the right to
reproduce or distribute copies of the work.  Accordingly, the
donee should determine whether the donor does in fact also own
the intangible rights and whether the gift is intended to include
them.  If so, the instrument of gift must expressly state that
the transfer includes the related intangible property rights,
including the copyright and rights of reproduction of the work.



Gift proposals should be reviewed with special care to ensure
that acceptance will not involve financial commitments in excess
of funds available, or other obligations disproportionate to the
usefulness of the gift.  Consideration should be given to the
cost and feasibility of fulfilling any conditions specified by
the donor including maintenance, cataloging, crating, delivery,
insurance, or display costs, as well as the cost of space
requirements for exhibition or storage.  The University should
decline gifts of tangible property that cannot be beneficially
used, housed, or displayed appropriately, or sell the gifts and
use the proceeds for University purposes (see Section IV: C.4).  


Related Use Rule For Tax Deductions for Gifts of Tangible 
Property

When a donation is made of tangible property, the amount of the
income tax charitable deduction depends in part on what use the
University will make of the property.  When the University can
use the property for the educational purposes on which its feder-
al tax exemption is based, or is likely to be able to use it for
such purposes, the donor is entitled to a deduction equal to the
property's full fair market value for long-term capital-gain
property (for ordinary income property, see below).   

                                                                           

If the University is not likely to put the property to a use
related to the University's exempt purpose, the donor's income
tax deduction is limited to the donor's basis (which generally
will be what the property cost the donor, or, if acquired by
gift, the cost to the person who gave it to the donor).  

Although the statute speaks of the recipient actually using the
property, the regulations qualify the gift for a full-value
deduction if:  (1) the recipient actually does not put the prop-
erty to an unrelated use, or (2) it was reasonable at the time of
the gift to anticipate that the property would be put to a
related use.

If the University sells donated property, it has not used it in a
related way, even if it applies the proceeds of the sale to carry
out its exempt function.  Donations to museums are an exception;
if the property is of the kind normally retained by the museum,
the full-value deduction is allowed even if the museum sells the
property, unless the donor had prior knowledge that the property
would be sold.

The Internal Revenue Service requires that the donor furnish
proof of compliance with the related-use rule.  The donor must
show that the University's use was related or that 
the donor could reasonably expect that the use would be related. 
Therefore, it is desirable for the donor to get advance written
confirmation from the University of its intended use of the gift. 
A Sample Deed of Gift form will be found in Section IV: B.1, Let-
ters and Deeds of Gift, that can be used for gifts from indivi-
dual and some corporate donors (for corporate gifts of research
equipment, see below).  The signature by an authorized person on
the Deed of Gift indicates that the University has reviewed and
agreed to the conditions of the gift.


Commercial Materials

The terms of gifts of commercial materials should be reviewed
carefully to assure their conformity with the pertinent section
of University Regulation No. 4, as follows:

     University laboratories, bureaus and facilities are not to
     be used for tests, studies, or investigations of a purely
     commercial character, such as mineral assays, determination
     of properties of materials, the performance efficiencies of
     machines, analyses of soils, water, insecticides, fer-
     tilizers, feeds, fuels, and other materials, statistical
     calculations, etc., except when it is shown conclusively
     that satisfactory facilities for such services do not exist
     elsewhere.

Corporate Gifts of Research Equipment

The 1981 Economic Recovery Tax Act increased the income tax
charitable deduction for certain corporate contributions of
equipment to colleges and universities.  The intent of the legis-
lation is to provide tax incentives for the manufacturers of
state-of-the-art scientific equipment to donate such equipment to
colleges and universities for use in research or research train-
ing in the physical and biological sciences.  

To qualify, the gift to the University must meet the following
requirements:

     --   The equipment must be the donor's stock-in-trade, or
          properly included in its inventory at the end of the
          year, or held by it primarily for sale to customers;

     --   The corporation must have manufactured or constructed
          the property (the cost of parts made by others cannot
          exceed fifty percent of the donor's basis);
                                                                           
     --   The donation must be made within two years of the prop-
          erty's substantial completion;

     --   It must be scientific equipment or apparatus substan-
          tially all of the use of which by the University is for
          research or experimentation, or for research training,
          in the United States, in the physical or biological
          sciences;

     --   The University cannot transfer the property in exchange
          for    money, other property, or services;

     --   The corporation must get from the University a written
          statement representing that the use and disposition
          requirements will be observed.  

Some donors are asking that the University include the actual
language of the law in its statement.  That language has no
ending date, and the question has arisen whether this would
require the University to retain the property in perpetuity. 
General Counsel has advised that the statutory language would not
require the University to retain property that has worn out,
become obsolete, or otherwise loses its ability to provide bene-
ficial service to the University.  Disposition of such items as
surplus property would be consistent with the representation made
to the donor if the campus had a good faith intent at the time of
gift acceptance to use the equipment for the prescribed purposes
and to continue such use so long as the equipment remains useful
for those purposes.  As a rule of thumb, if the equipment is used
for at least two years following the date of contribution, it
probably can be declared surplus and be disposed of in accordance
with established University policies without jeopardizing a
donor's deduction.  If there are any questions, General Counsel
should be consulted.