At Issue
When you receive a gift from a contributor, do you immediately feel fortunate and quickly send a thank-you note from your organization? That may be a mistake, because not all gifts are created equal. Having a written gift acceptance policy in place — and using it to decide whether you should accept a donation — is important to your organization’s balance sheet, work load, and reputation.
Situation
Saltwater Christian College (SCC) is a private college and a public charity under IRC section 501(c)(3).. Their CFO, Mack, calls us to ask about any potential issues with a gift of property that a donor wants to make to the institution. The property includes a 105-year-old brick building that was a fish processing plant until 1988 and 2.5 acres of riverfront land. Mack asks, “What should the board and management do in terms of due diligence on this?”
We tell them that the property — although seemingly perfect for their college — could have myriad issues (i.e. legal, environmental, title, encumbrances, budgetary, etc.).
Ultimately, the organization’s governing body should decide whether it will accept noncash donations (in-kind gifts), what limits on types of property may be needed, and formalize its decision in a policy. No board wants the headache of having accepted a piece of real estate that is environmentally contaminated. A gift acceptance policy should include:
- The organization’s mission statement
- The purpose of the policy guidelines
- The type of assets accepted (or not accepted)
- Any restrictions (e.g., contributions of real estate are not accepted in the last quarter of the year)
- How donor conflicts of interest will be handled (i.e., independent counsel)
- Allowable restrictions on gifts by donors
Rules
From Schedule M (Form 990) Instructions:
Line 31. Answer “Yes” if the organization has a gift acceptance policy that requires the review of any non-standard contributions. A non-standard contribution includes a contribution of an item that is not reasonably expected to be used to satisfy or further the organization’s exempt purposes (aside from the need of such organization for income or funds) and for which (a) there is no ready market to which the organization can go to liquidate the contribution and convert it to cash, and (b) the value of the item is highly speculative or difficult to ascertain.
Bottom Line
A “Gift Acceptance Policy” – or more poignantly – a missing Gift Acceptance Policy might wreak havoc at your institution. Here are some thoughts on the process…
Saying “no” to a gift
While it might be human nature to accept gifts graciously, some nonprofits are turning certain gifts down. The Wall Street Journal reported, for example, that officials at the Cleveland Museum of Art, the Indianapolis Museum of Art, and the Houston Museum of Fine Arts often decline gifts over quality, condition, space limitations, and unsuitability to the museums’ missions.
A gift acceptance policy provides an objective way to decline a gift but still maintain a good relationship with the contributor. A written policy removes focus or blame from the contact person and makes it clear that rejection of a gift is the result of policies set in the past.
Moreover, a gift acceptance policy contributes to good governance because it disciplines your organization to weigh the advantages and disadvantages of accepting and administering a gift. Also, the revised IRS Form 990 asks nonprofits if they have a gift acceptance policy if they receive more than $25,000 in noncash contributions. (A policy isn’t legally required, and the form currently solicits no details.)
Finding a perfect fit
A strong gift acceptance policy defines the types and forms of assets that are acceptable and your organization’s role in gift administration. It should contain these elements:
- Your mission,
- The policy’s purpose,
- The types and forms of acceptable gifts,
- The circumstances in which a gift should be reviewed by an attorney,
- An acknowledgement of reporting requirements,
- The role of a gift acceptance committee, and
- An annual review of gifts.
- Mold your policy to fit your nonprofit’s size and characteristics. Developing the policy should be a collaborative process between your board, planned-giving staff (if applicable), finance personnel, program administrative staff, and management.
Judging what you can handle
When forming your gift acceptance guidelines, start with a self-assessment. Your nonprofit must determine its ability to manage each type and form of gift. For example, you may not want to accept gifts of real estate if your organization isn’t staffed to manage the property or isn’t willing to act as the landlord.
In another example, tangible personal property such as furniture or stamp collections may need insurance, special display cases, or off-site storage. This could require your organization to incur substantial out-of-pocket costs for years to come. Ask yourself if your nonprofit has the resources — and desire — to manage such gifts.
All policies should state that gifts which conflict with your organization’s mission should be rejected. (A diabetes organization, for example, might not want to accept investments in sugar companies). The policy also should address how gifts will be managed and invested (if applicable) and how the nonprofit will dispose of them.
Pay special attention to any restrictions that donors place on gifts. Almost all organizations prefer unrestricted gifts so they can use the funds as they wish. But donors of personal tangible property likely will want to specify how their gift will be used. Organizations that prohibit input from donors may find it difficult to raise large amounts of funds.
Specific questions? Email Dave Moja
The information provided herein presents general information and should not be relied on as accounting, tax, or legal advice when analyzing and resolving a specific tax issue. If you have specific questions regarding a particular fact situation, please consult with competent accounting, tax, and/or legal counsel about the facts and laws that apply.