Schedule D, Part III pertains to works of art, historical treasures, and similar assets, and the first 2 lines require some context about accounting treatment for this kind of asset. Under FASB 116, organizations that receive contributions of works of art, historical treasures, and similar assets can choose whether or not to recognize these contributions as revenue on their statement of activities, or assets on their balance sheets, if their collections meet 3 criteria:
- They are held for public exhibition, education, or research in furtherance of public service rather than financial gain.
- They are protected, kept unencumbered, cared for, and preserved.
- They are subject to an organizational policy that requires proceeds from sales of collection items to be used to acquire other items for collections.
The reason for allowing these collection items to not be reflected on financial statements was due to the difficulty in ascertaining the value of many such items, and the effort and cost of valuing them may be greater than the benefit received from reporting the information. If you have collection items and choose not to capitalize them as assets (and not to recognize contributions of them in the revenue you report), then you’re required to include a footnote to your financial statements about them.
If you do not capitalize your collection items, include the related footnote from your financial statements in Schedule D, Part XIII. If you do capitalize them, put the related contribution revenue on line 1b(i) and the related assets in line 1b(ii). Works of art, historical treasures, and similar assets that you receive or hold for financial gain are not part of a collection, and you’re required to capitalize them as assets on your balance sheet and recognize revenue if you receive them as contributions. If you have any of these assets for financial gain, report the revenue and asset values on line 2a and 2b, respectively.
On line 3, check off any boxes that describe significant uses of your collection items. Per line 4, describe in Part XIII your collections and how they further your mission, what the IRS considers your exempt purpose. On line 5, check off whether or not you solicited or received donations of art, historical treasures, or similar assets so that you could sell them to raise funds, rather than using them as part of your collection.
Schedule D can be found here, and more detailed instructions for filling it out are provided here. I am covering other parts of Schedule D in additional blog posts. (Part I | Part II | Part V | Parts VI – X | Parts XI – XII)