I’m often asked, “Can a nonprofit sell an asset?” Typically, the question is about a car that they no longer want. The answer is, “Yes, nonprofits can sell assets they no longer need.” Being created for a charitable purpose doesn't impact the nonprofit's ability to buy and sell assets. It's actually quite common. So let's unpack those details today.

      Good stewardship of your resources includes making decisions about a nonprofit’s assets when they are sitting idle and not being used for the mission. Getting rid of such items may be a smart move for your nonprofit. Obviously, if an item is in poor condition, disposal is going to be the best option. But, for assets that are in good condition, the nonprofit should first decide whether to donate it to another non-profit or sell it. One very commonly sold type of asset is vehicles. When it’s time for your nonprofit to sell a vehicle,  here’s some best practices for nonprofit leaders to keep in mind.

(Obviously, most of these apply no matter what the asset is, but I'm using vehicles for the sake of illustration.)

1. Determine The Value

     So… how do you determine the value of an asset? Well, it really depends on what it is, but in our example of vehicles, there's actually a great resource that provides a framework for valuing vehicles called the Kelley Blue Book. Once there, you’ll find a framework for how to value the nonprofit’s specific vehicle that you're considering selling. 

2. Document The Transaction Details

     Once you’ve established the fair market value, you’ll need clear and comprehensive documentation to support the legitimacy of this transaction and ensure that it complied with state and federal laws. This gets tricky if you're selling the vehicle to a related party. 

Can a Nonprofit Sell a Vehicle to a Staff Member or Relative? 

     A “related party” can be a staff member, a volunteer, or a family member of any one of those. When selling a vehicle (or other nonprofit asset) to a related party, the documentation should be much more extensive because we need to do these transactions as though we were doing them with a stranger. 

How to Correctly Sell a Nonprofit Asset to a Related Party

     Related party transactions must be done at what the IRS calls “an arms length.” In other words, the nonprofit should conduct the transaction at the same distance they would transact with an unknown buyer. Documenting these transactions correctly is critically important because giving preference to a related party can actually trigger IRS scrutiny over “self-dealing transactions” or “private inurement concerns” both of which carry serious consequences like penalties and fines So, if you're transacting with a related party, be sure that you conduct the sale as though it was with a total stranger and document how those terms were established. Whether you’re selling to a related or unrelated party, make sure you document all the details of your transaction. 

3. Board Review and Oversight

     Finally, I recommend that you have board review and oversight when you sell assets. Now, I'm not saying your board should be involved in selling a $50 file cabinet. But I do recommend you involve your board in the sale of your nonprofit’s vehicles or assets that are more substantive in their value and their use. By involving your board in significant transactions, they can help to provide a covering of transparency and accountability . 

     Once your nonprofit’s vehicle or asset has been sold, be sure you have confirmation and a clear paper trail documenting that the funds that came in from the sale of that asset went back into your nonprofit and were used to fulfill your nonprofit's mission. It’s essential for nonprofits to approach all transactions with diligence, transparency, and integrity so that we can uphold our missions and protect our reputations.

     If you need answers to your specific questions about selling a nonprofit asset or a financial situation unique to your nonprofit, I’m here to help! You can book a strategic consult with me here!