Old MacDonald Had a Farm ... and a Donor Advised FundSubmitted by American Endowment Foundation on April 8th, 2019
By Eric Kinaitis
One of the most innovative ways that donors are able to put assets to use for charitable giving is through the means of donating agricultural commodities, such as gifts of grain. Although the circumstances may clearly be limited to farmers and the financial advisors who serve them, the process underscores the innovative strength of donor advised funds (DAFs) in handling complex noncash assets.
Here is how the process works:
- The farmer can exclude the sale of the cash crop from income and deduct the cost of growing the crop. There is no deduction for a charitable contribution.
- Available for cash basis farmers. Farmers must engage in cash accounting.
- Crop share landlords cannot gift grain. Shares of crop are rental income that must be reported as income on their tax return.
- The farmer must give up “dominion and control” of the commodity.
- The farmer cannot sell the grain and order the proceeds to be sent to the donor advised fund administrator. This would result in the transaction being considered a cash sale and cash donation since the farmer has not given up control of the property.
- The farmer should not provide guidance to the charity regarding the sale of the commodity.
- The DAF administrator assumes the risk after the transfer. These risks include storage, transportation and marketing costs as well as price risk.
- The transaction must be well documented to show the DAF administrator as the owner.
- Costs associated with growing the crops may not be deductible if those costs are incurred in the same year as the year of the donation of the grain. Therefore, gifts made from the prior years' unsold crop inventory may offer the best tax results. See your tax advisor to determine if this is the best course of action for your circumstances.
- Grain can be gifted at any time during the tax year.
- The gift should be from unsold crop inventory. No sale commitment should be made prior to the gift.
- The DAF administrator will retain the warehouse receipt and the original invoice showing them as the seller.