Formal Gift Acceptance Policies Help Donors as well as Non-Profits
by Robert I. Evans and Avrum D. Lapin
If history is any indicator, the Internal Revenue Service will audit only about one percent of the returns that individual American taxpayers file. And while some of these audits are done at random, many result from donors who may try to over-value their non-cash charitable gifts. This leads us to an important and perhaps critical recommendation for every non-profit: all organizations should create and implement formal gift acceptance policies that address any and all possibilities. Non-profit leaders should review these guidelines annually and be prepared to strictly enforce the policies.
In addition to making cash contributions, the IRS encourages individuals to donate items like clothing, food and even old automobiles to charities, by offering a deduction in return for these donations. However, there is a major problem with this system: it is up to the taxpayer to determine the value of goods that are donated. The IRS suggests that the value of donated items be between 1% and 30% of the original purchase price (unless special circumstances exist). For items valued at $5,000 or more, an appraisal is required.
Regardless of the size of the non-profit, there are many decisions to be made about accepting non-cash gifts. Here is a set of ten basic questions to address:
- Will a donor receive “campaign credit” for all types of gifts-in-kind, such as re-paving the parking lot or installing new air conditioning equipment?
- Will an agency accept real estate as a gift, especially knowing that it may be difficult to sell the property?
- What is the minimum age that an organization wishes to accept charitable gift annuities?
- Can unrelated donors merge their gifts to receive “campaign credit” for special naming opportunities?
- How much of a gift must be received before formal, permanent recognition takes place?
- Does your non-profit have procedures in place to accept appreciated securities?
- Who pays for the formal appraisal of non-cash gifts that the IRS requires?
- Even though the IRS says that non-cash gifts to a non-profit must relate to the purposes of the agency, who determines whether or not to accept these gifts?
- If a donor gifts works of art, who determines where they will be displayed or if they will be sold?
- Do you want to accept gifts of cars and/or boats as these are often difficult to liquidate and cause problems for donors as well as non-profits?
Other questions routinely develop about accepting non-cash gifts, especially when donors are motivated by other than charitable intent, which happens periodically. We assume that most donors – especially the largest – have financial advisors who craft gift packages that satisfy a number of their personal situations. We don’t want you to undermine your top donors but we want all non-profits to be sufficiently prepared for all situations. By developing formal acceptance policies your non-profit will be better equipped to anticipate these various situations.
Robert I. Evans, Managing Director, and Avrum D. Lapin, Director, are principals of The EHL Consulting Group, of suburban Philadelphia, and are frequent contributors to eJewishPhilanthropy.com. EHL Consulting works with dozens of nonprofits on fundraising, strategic planning, and non-profit business practices. Become a fan of The EHL Consulting Group on Facebook.