Existing IRS code clearly indicates that fees are to be based upon actual costs rather than upon donation value. Our guidance thus suggests that non-profit organizations use as their basis for fee calculation actual expenses incurred per shipment or average expenses incurred over a given fiscal period.
If it is overly burdensome to identify specific administrative, warehousing, and other costs on a donation-by-donation basis, an average expense basis may be used. One method for developing an average expense basis would be to develop a cost pool of all expenses related to the administration, warehousing, or other similar costs of handling GIK. The cost pool could contain full or partial salaries of staff involved in GIK activities; administration expenses such as office space, photocopying, telephone, and fax services; and warehousing costs (rent or depreciation).
The cost pool could be based upon these total budgeted expenses for the year. Once the total cost pool is developed an average expenses could be calculated on one of several bases. The average could be based upon the average number of GIK handled during the year (such as 20,000 tons of food supplies), the number of shipments to be made (such as 40 20-foot ocean containers), the total value of GIK to be handled during the year (such as $2,000,000), or some other basis. If the total costs allocated to the cost pool totaled $120,000, service fees could be based upon $46 per ton of food handled ($120,000 divided by 20,000 tons), $3,000 per 20-foot container ($120,000 divided by 40 containers), or $.06 per $1 of value ($120,000 divided by $2,000,000.
The basis for determining the average cost needs to reflect the actual expenses that would be associated with handling and processing the GIK. For example, if high dollar value GIK take the same amount of expenses and effort as low dollar value GIK to manage and process the service fee should not be based upon the dollar value of the GIK. In some cases, a combination of methods to determine an average may be needed to accurately reflect GIK processing expenses. If more than one basis of determining an average is used, the total amount allocated should not exceed the total expenses included in the cost pool.
Whatever basis is selected for determining the average handling costs, it is important that the cost pool be based upon estimated or actual expense related to the handling of GIK and not arbitrarily determined. If cost pools are based upon budgeted amounts and activities, they should periodically be adjusted to reflect actual costs.
