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Do these donor restrictions negate the charitable contribution?

  • 1.  Do these donor restrictions negate the charitable contribution?

    Posted 10-27-2021 05:38 PM
    Hi all.  I am wondering if the conditions of a recent gift agreement might negate the charitable properties of a gift.

    Donor ​​is giving us money to purchase specific equipment to be used in the hospital.  Once the funding has been received, the donor is imposing restrictions including bi-weekly reporting on the status of order, delivery and installation and a specific date that it is to be fully operational.  Provision is made for an extension of that date should there be a delay that is NOT caused by us.   Should the delay be caused by us, the funding is to be returned to the donor at its sole discretion.

    The equipment is something we need, so that is not an issue.

    I appreciate your feedback on this.  I haven't seen these kinds of restrictions for a gift before.

    Thank you so much.  Dale



    ------------------------------
    Dale Hailey
    Manager, Gift Services
    Sutter Health Philanthropy
    haileyds@sutterhealth.org
    ------------------------------


  • 2.  RE: Do these donor restrictions negate the charitable contribution?

    Posted 10-27-2021 05:53 PM
    The only point I worry about is the return of funds.  With that provision, the donor has not irrevocably given the money to you.  That is a key for the IRS - irrevocable control.

    It is not uncommon for grants to include the return of UNUSED funds.  But that also means when you spend the money, it is irrevocably yours.

    Unless there is "unused" language in this agreement, I would be wary of counting this.  I also think the determination of fault sounds a bit subjective.

    I would work with the MGO and donor to soften that language.  And get Counsel involved, too.

    John

    John H. Taylor 
    919.816.5903 (Cell/Text)

    Big Ideas; Small Keyboard





  • 3.  RE: Do these donor restrictions negate the charitable contribution?

    Posted 10-27-2021 05:58 PM

    Thanks John.  I appreciate this guidance.  It's reassuring to know that I can count on this forum when these odd issues come up.

     

    Dale

     

     






  • 4.  RE: Do these donor restrictions negate the charitable contribution?

    Posted 10-27-2021 06:53 PM
    Glad to help!

    BTW, the new CASE Standards expand on concerns regarding "donor control."  While this specific case is not discussed, I do appreciate this one sentence found in paragraph 3.1.2:

    "A donor may not retain any explicit or implicit control over the use of a gift after acceptance by the institution."

    It seems to me that if the donor has the ability to determine and declare you of somehow being "at fault" and demanding a return of the gift, that feels like a lot of control.

    John

    John H. Taylor
    Principal
    John H. Taylor Consulting, LLC
    2604 Sevier St.
    Durham, NC   27705
    919.816.5903 (cell/text)

    Serving the Advancement Community Since 1987







  • 5.  RE: Do these donor restrictions negate the charitable contribution?

    Posted 10-28-2021 08:16 AM
    Dale, I think the restrictions change the timing of gift recognition, rather than the charitability of the gift. Had the donor given you the money with only the use restriction, it would be a gift. If we then add a time restriction that would be no different than a grant where unspent funds must be returned. The donor's charitable intent is that you spend all the money, and the donor does not retain any control over the money. It's totally up to you to spend it. The reporting conditions don't alarm me either, so long as they are informational only. The donor is not exerting control over the operation, they are simply receiving information. 

    However, given the contingency regarding the date the equipment is operational, it seems to me that the correct way to characterize this transaction is a loan, followed by forgiveness of that loan if you're able to make the due date. Upon successfully installing the equipment, that loan forgiveness is a gift.

    If you want to be able to recognize the gift earlier, there's work to do. One approach could be that, say, 80% is donated now for equipment purchase, and the remaining 20% is a challenge grant based on having it installed by some date, with extensions available to that date as you describe. This could preserve the donor's goal of lighting a fire under everyone to get this done, while allowing the bulk of the gift to be counted immediately, and lowering your org's risk in making the purchase. 

    Thank you,
    Isaac Shalev
    Data Strategy Expert
    Sage70, Inc.
    (917) 859-0151
    isaac@sage70.com

    Schedule a 30-minute consultation now: