Article written by:
Kevin VerHoef, CPA
Many nonprofits rely on charitable gifts from their benefactors to sustain their operations. Unfortunately, not all not-for-profit organizations are able to receive necessary resources to carry out their mission. In uncertain times, a charitable organization may accept any and all gifts. A gift of $500,000 cash can easily be put to use, but what about a donation of $500,000 in real estate or artwork?
Non-cash donations may come with additional expenses and hardships that the non-profit did not consider at the times the gifts were accepted. When it comes time to sell that $500,000 piece of real estate, sales agent commissions, title insurance, inspections, possible EPA remediation, and repairs to the property can result in thousands of dollars in unforeseen expenses. Developing a formal gift acceptance policy can guide a non-profit organization as to whether a charitable donation should or should not be accepted. A well-written policy can be very helpful to staff, as well as donors.
When developing a gift acceptance policy, consider the following:
- Clearly define the types of assets the organization will accept and provide an example for donors to reference.
- Outline the process used to determine if the gift will be accepted. Will any staff or member of the organization be able to accept a gift on its behalf? What happens when a benefactor donates a business interest, real estate, or artwork that requires the engagement of a third party to determine its value? In this situation, in may be prudent to utilize an acceptance committee to review the donation prior to its acceptance.
- Detail any additional actions that are the responsibility of the donor prior to final acceptance. What if that piece of artwork was a forgery or the real estate had a crumbling foundation? Requiring the donor to perform due diligence procedures prior to final acceptance can minimize risk.
- Clearly identify the types of assets that the organization will NOT accept. Tangible property such as furniture, vehicles, or jewelry may be difficult to liquidate.
- Provide tax guidance to the donors. Non-cash gifts such as stock or business interests have more complex tax treatment than traditional cash donations. If the organization engages a tax professional, consider providing donors their contact information.
- Due to complications of non-cash donations, consider if it’s necessary to establish thresholds for the minimum or maximum value of non-cash gifts the organization will accept.
A comprehensive gift acceptance policy will provide a guide for both the organization’s staff and donors, as well as mitigate the risk to a non-profit. By clearly documenting what will and will not be accepted, as well as actions that must be taken by the donor, the organization can focus their efforts on donations that further their mission.