Gift Tax Lemon

On January 12, 2012, I attended the progam "Gift Acceptance Policies: Why, When, What, How, and Who" presented to the Northern California Planned Giving Council by exempt organizations attorney Barbara Rhomberg.  Using the example of the Trojan Horse, Barbara quickly convinced us that not all gifts are good ones and the time for a gift acceptance policy is before a charity accepts a problematic gift.  Here are some highlights of her talk [and some of my thoughts in bracketed text].

There are 5 factors a charity must consider before accepting a noncash gift:

  1. Costs of ownership.
  2. Costs associated with the sale.
  3. Staff/volunteer time required.
  4. Exposure to liability [and other harm].
  5. Marketability of the gifted asset and any cash flow associated with it.

In addition, a charity must assess the impact of any restrictions on the use or disposition of the asset (e.g., prohibitions against a sale, endowment-related issues); any strings and conditions (e.g., naming opportunities, payment of associated legal or appraisal costs); embarassing gifts (e.g., due to nature of donor's business); and tax shelters.

Gifts of real estate may be of great value to a charity.  But there may also be significant costs of ownership (e.g., maintenance, insurance, property taxes) and sale.  Additionally, there may be risks of environmental liability (particularly with undeveloped land or land with prior commercial use), title problems, prior mortgages/liens, and marketability.  [For fiscal sponsors, there must be consideration of what the sponsoring organization will do with real estate secured for a project if the project committee fails to raise sufficient funds and/or disbands.]

Planned gifts (e.g., charitable remainder trusts, charitable lead trusts, charitable gift annuities) will require special consideration.

A gift acceptance policy will help protect a charity from accepting a bad gift, expedite the acceptance of a good gift, facilitate the tactful decline of a gift, and evidence an appropriate level of governance [which will be reflected on its Form 990]. A good policy will answer the following questions among others:

  • What assets can be accepted?
  • Who will review the assets and how will they be reviewed?
  • How will restrictions, strings, and conditions be evaluated?
  • Who can accept the asset?

While charities will not want to be bound by rigid rules that fail to consider special circumstances that might make an exception in order, a good policy will identify who is authorized to make such exceptions (e.g., executive director, board committee, or board).  A good policy will also take into account the charity's unique set of facts and circumstances.  And a charity will benefit from the experience of working through development of its own gift acceptance policy that considers its own unique set of facts and circumstances.  Simply copying a template document may be do more harm than good though review of a few strong templates may be a great place to start.

Resources suggested by Ms. Rhomberg include:

Gift Acceptance Policies – Why, When, What, How, and Who – Barbara Rhomberg

Effective Gift Acceptance Policies and Procedures – David Wheeler Newman

Model Gift Acceptance Policy and Procedures - David Wheeler Newman

Understanding and Drafting Nonprofit Gift Acceptance Policies – Kathryn W. Miree

Great presentation, Barbara!

Comments

  1. Doug Delaney says:

    Great article, thank you for sharing this information

  2. Gene Takagi says:

    Thanks, Doug. Credit really goes to Barbara Rhomberg, who is an expert in this area.