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Introduction
Some charitable contributions have the potential to create significant problems for an organization or a donor. Knowingly or not, contributors may ask a charity to disburse funds for illegal or unethical purposes, and other gifts may subject the organization to liability under environmental protection laws or other rules. Some types of corporate sponsorships or interests in corporate stock or assets may result in unrelated business income for a charitable organization. Donors may also face adverse tax consequences if a charity is unable to use a gift of property in fulfilling its mission and must instead sell or otherwise dispose of the property soon after the donation is received.
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A gift-acceptance policy provides some protection for the board and staff, as well as for potential donors, by outlining the rules and procedures by which an organization will evaluate whether it can accept a contribution even before an offer is actually made. The policy should make clear that the organization generally will not accept any non-cash gifts that are counter to or outside the scope of its mission and purpose, unless the item is intended for resale or would otherwise produce needed revenue for the organization. It should list any funding sources, types of contributions, or conditions that would prevent the organization from accepting a gift. The organization should also consider establishing rules and procedures for determining whether a gift is acceptable and should identify circumstances under which a review by legal counsel or other experts would be required before accepting a gift.
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Core Concepts
- A gift acceptance policy serves as a guide to accept or refuse charitable contributions.
- When accepting gifts, the organization should keep in mind the mission, restrictions, and conditions of the gift; liabilities that may come with the gift; and how the gift or the donor may affect the reputation of the organization.
- The organization should pay special attention to noncash gifts, such as real estate, motor vehicles, art, and appreciated stock.
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Legal and Compliance Issues
- If the donor imposes too many restrictions on the use of the gift, the gift may lose its tax deductibility.
- The IRS Form 990 asks whether organizations have a gift acceptance policy requiring the review of nonstandard gifts, such as property that is not readily marketable.
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Legal Background
Federal law designates certain transactions as prohibited tax-shelter transactions and imposes
excise taxes and disclosure rules on certain tax-exempt entities that are party to such transactions, regardless of whether the transaction was initiated by a charitable contribution. 1 Recent guidance provided by the Internal Revenue Service outlines the circumstances in which excise taxes may be imposed pursuant to Internal Revenue Code Section 4965 on charity managers and organizations on income received after August 15, 2006, resulting from a transaction in which the charitable organization is a party to a prohibited tax shelter transaction.2(From The Principles for Good Governance and Ethical Practice: Reference Edition,
Published in 2007)1 The Tax Increase Prevention and Reconciliation Act of2005 P.L. 109-222
2 See IRS Notice 2007-18. The IRS has indicated that it will issue further guidance on charitable abusive tax-shelters in late 2007. -
Discussion Points
These questions – from the Principles Workbook (PDF) – are intended to prompt discussion about the principle, assess the polices and practices of your organization, and encourage your organization to take steps to identify where improvements should be made.
- How can gift acceptance policies help an organization make the right decision at the right time? Have we adopted comprehensive gift acceptance policies?
- What examples are we aware of where organizations have encountered problems by accepting gifts?
- What procedures would we follow if we unexpectedly received a gift that exceeded all expectations and went well beyond the typical gift?
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Resources for Principle #30
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Related Principles
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Supplemental Materials
