Accepting or Refusing Gifts
How should a nonprofit react when a regular donor sends a gift of stock instead of the traditional generous check? Or when a community member wants to donate a piece of land?
What should a nonprofit do when a controversial enterprise offers to sponsor its annual conference? Should a nonprofit accept a contribution to fund a new program that only marginally relates to its mission? Without adequate gift acceptance policies, a nonprofit may be forced to make quick decisions it may regret later.
Gifts unrelated to mission
If a donor proposes to fund a pet project or offers seed money for an activity that does not relate to the mission and purpose of the organization, the board must carefully assess the consequences of accepting this money. Without clear guidelines — or blinded by a generous offer — the organization may veer off course and become involved in activities that will drain resources from its bona fide programs. “Follow the mission” is the strongest gift acceptance policy any board can have.
Few contributions come with no strings attached. Individual donors often want to set conditions for their gifts. A nonprofit needs to define its limits and determine whether it is able to honor the restrictions. Donors may demand that the funds be used for a particular purpose or be dispersed within a certain period of time. The donor might also want to be recognized in a specific manner. If the demands are unacceptable, the organization can try to negotiate with the donor and make him or her understand the existing constraints. The organization can point out how certain restrictions may affect the donor’s tax benefits.
Would an environmental nonprofit want to accept a donation from an oil company? Should a daycare center take major contributions from a celebrity with a questionable parenting reputation? Would a high school allow a liquor company to sponsor its sports event? When the values or practices of a donor do not meet the standards of the organization, the best policy is not to accept the money. In the long run, the reputation of the organization is worth more than any check.
Planned giving vehicles (bequests, charitable remainder trusts, insurance policies) are labor intensive to manage and may not be feasible for every organization. Unless an organization has dedicated staff or can hire a professional to promote and manage estate planning, it may be wise to decline traditional planned gifts.
If a nonprofit has market-savvy financial managers and already holds a portfolio, it most likely has a process for evaluating gifts of stock. If the process is not in place, the organization must create a clear policy whether to hold on to stocks or sell them immediately. For many nonprofits the best policy is to sell. Advantages of this approach include the following:
- Eliminates second-guessing about whether the stock was sold at the right time
- Avoids ethical questions over affiliation with certain companies
- Avoids manipulation of large amounts of stock
Donors may get a tax benefit by giving stocks rather than cash because of elimination of capital gains. Staff must be able to articulate the benefits of a cash contribution to the organization without losing this donor.
Donating old cars to nonprofits to be auctioned off is becoming increasingly popular. A nonprofit accepting car donations needs to investigate the red tape and determine whether it wants to be associated with the used car business. The IRS changed its rules concerning car donations (effective 1/1/2005) making it more difficult for donors to overestimate the value of their gift. Please see the updated rules on the IRS website.
Real estate gifts are probably the trickiest gifts to accept. Unless a gift solves a major capital management problem by providing a home for the organization, a nonprofit must be extremely vigilant before accepting real estate donations. When conducting real estate transactions, you should
- understand all the laws and regulations and hire a skillful broker
- evaluate the gift by requiring a professional appraisal and title report, order an environmental inspection, and
- physically inspect the property
- calculate eventual repair costs, legal and sales expenses, and assess obstacles for selling the property (liens, zoning issues, donor restrictions).
Art gifts may benefit organizations besides museums. Art lovers may decide to donate their treasures to local hospitals, child care centers, or community colleges. These organizations must decide whether they are able to provide proper display areas, insurance, security, and care for the art pieces. Boards need to decide how the organization benefits from this gift. Boards may also have to deal with donors whose assessment of the value and quality of the art differ from a professional appraisal. The subject matter of the art may be inappropriate for the organization. The donor may disapprove of the charity selling the masterpiece. If the donor wants to receive full tax benefit, the charity must hold on to the art piece for at least two years before selling it.
As the above examples show, not every gift is a blessing. Without good policies in place, it may be difficult to immediately determine whether a nonprofit should accept a donation. Always consider the mission and reputation of the organization. Consider the practicality of the gift, whether to keep it or sell it, and how to negotiate with a potentially high-maintenance donor in order not to lose him or her for good.
101 Resource | Last updated: June 8, 2016
Resource: The Nonprofit Policy Sampler