Does Your Organization

Have a Gift Acceptance Policy?

by Mark Potts, CPA, PFS

In the early years of a newly formed non-profit agency, an organization typically receives cash gifts and potentially, publicly traded securities. As an organization grows and expands, it may begin to broaden its revenue raising alternatives. Such items as endowment gifts, insurance policies, condominium timeshares, non-cash gifts, split-interest gifts, and major capital campaigns are examples of these expanded revenue areas. These types of gifts may often contain special provisions affecting the organization, the donor, and have unique IRS implications. An organization should be prepared beforehand to know whether it is equipped to handle these special gift types. If so, there should be clear procedures in place to follow the gift acceptance process.

Here is a simple example of an issue that may arise for a cultural or arts organization that typically relies on cash gifts, membership fees, and performance ticket sales to meet its annual revenue budget. A well intended donor may approach the organization with an offer to donate their used piano to the agency. While the donor is intending to help support the agency, they are also likely looking for an individual income tax deduction for this item. The IRS has very specific rules addressing special in-kind donations of this type of asset. In this situation, the donor's tax deduction may be limited based on the use that the agency will make of the piano. If it is reasonable to expect that the donated tangible personal property (piano) will be used for a purpose unrelated to the mission of the organization, the deductible value may be limited. Also, if the asset is sold within three years after the donation, potential recapture of the previous deduction may occur.

A gift acceptance policy is helpful in several ways. First, it educates the staff and the governing board about critical issues triggered by certain kinds of gifts. Second, it prevents the acceptance of gifts that are a poor match or inappropriate for the organization. Third, it is difficult to properly investigate a gift's impact when the donor is expecting approval. A gift acceptance policy gives the organization the time to properly follow its procedures and to bring in experts, if necessary, to arrive at a decision that is right for the organization. Finally, it impersonalizes a refusal. It isn't an agency director or officer telling a donor that a gift isn't acceptable; it is the policy of the organization, which a true friend of the organization should understand.

A gift acceptance policy should address the following items:

• The organization's mission
• Purpose of the policy
• A promise to protect its donors
• Description of acceptable gifts
• Description of the gift acceptance process
• Policies for use of legal counsel

To preserve donor relations, it is important to make a donor aware of the organization's gift acceptance policy as soon as learning of the donor's intent. The organization may want to give the donor a copy of the policy and should keep the donor informed in a timely manner as to the process and time frame. If a gift acceptance policy is properly drafted, it will help both a donor and the organization in dealing with potentially difficult gift issues.

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