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Our 501(c)(3) organization recently received a store gift card as a donation from a donor.  How should we account for this in our income statement and balance sheet?

I would account for it as a contribution equal to the value of the card, assuming that the issuer is still in business and in a position to redeem it.  It would increase your net assets in an equal amount.

On the Form 990 tax information return I would treat it as a noncash contribution.  Although the instructions are not entirely clear on the point, it seems less like a check, which is essentially the equivalent of cash and would be treated as a cash contribution, and more like a bond or note redeemable by the issuer, which would be treated like a security and as a noncash gift.   Unless it is a very large amount, however, I don’t think I would lose much sleep worrying over the classification.

Comments from our Readers

Don - I would have to question your advice on treating the gift card as a non
cash contribution.  The reason I say this is because if a company
provides gift cards to its employees, it must treat them as cash and
therefore are subject to payroll taxes.  

In my opinion, this is no different than a check.  By your logic, we
should presume that checks are non cash as well, considering the issuing
bank still needs to honor the check (assuming that they are still in
business). --B.R. CPA Via e-mail

This is an interesting point.  I have no problem with treating gift cards to employees as compensation but that doesn't necessarily equate to cash because compensation can come in many forms other than cash. In fact, the U.S. Master Tax Guide summary of the principle you cite says that distribution of a gift certificate "or a similar item of value readily convertible to cash" must be included in the employee's income.   That implies that the card is not cash, but only convertible into cash.  A check, on the other hand, is by law a negotiable instrument that can be used for the payment of obligations.  

I agree it is a close question and I wouldn't get upset with your conclusion.  But I am not convinced that your conclusion is compelled by the principle you cite. --Don Kramer

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