The Importance of a Gift Acceptance Policy
Every few years, I seem to come back to the topic of gift acceptance for Health Centers and other nonprofits. Although I have posted the following information in the past, it has been a while and based on some conversations over the past few weeks it seems like a great time to revisit the topic.
Traditionally, Health Centers have two main sources of revenue: federal grants and patient service fee revenue. For many Health Centers, the third would be 340B pharmacy. Although some Health Centers maintain fundraising as a revenue stream, they can be hesitant to pursue larger estate gifts, restricted gifts or gifts of complex assets. These charitable gifts, whether current or a planned, can further diversify a Health Center’s revenue stream. However, if caution is not exercised, a gift that looks like a ‘game changer” can turn into a burden that has a negative impact on the organization. That is why a strong gift acceptance policy is crucial.
A gift acceptance policy is not only used to assist the staff and Board in the decision-making process, it also is a tool for donors and their professional advisors to understand and navigate the gifting process to your organization. A clear and transparent gift policy will eliminate any surprises for the Health Center and the donor.
Developing a Policy
The first step in developing a strong gift acceptance policy is defining Scope and Purpose. It should be clear that the policy is in place to maximize the benefits to both the Health Center and donor. The FQHC needs to encourage charitable giving, without encumbering itself with gifts that generate more cost than benefit.
This section of the policy should state the following:
1. The policy is designed to protect the charitable interests of the Health Center as well as the donor.
2. Gifts will be evaluated to ensure the Health Center will not be encumbered with restrictions that may generate more cost than benefit.
3. Gifts must fall within the mission of the organization, regardless of the charitable intent.
4. Acknowledge that many gifts are complex, and the organization only accepts these after careful consideration and due process.
5. Gifts must comply with all federal, state and local laws.
6. Indicate that you follow the Donors Bill of Rights as developed by the Association for Healthcare Philanthropy, Association of Fundraising Professionals and other philanthropic support agencies.
For common gifts such as checks and readily marketable securities, most organizations have a policy which states these gifts will be accepted without prior approval of the Board of Directors. Each month, the Health Center’s Board receives a list of these gifts and then ratifies the acceptance of these donations. For gifts with specific restrictions, the policy will generally have a dollar threshold where additional due diligence is required.
Typically, the policy will state that gifts of readily marketable securities will be immediately sold. This prevents the Health Center from being in the position of needing to evaluate the stock holding and trying to time the sale of the security.
Unique and/or Complex Gifts
It is important for your policy to disclose how your Board will handle unique and/or complex gifts. Generally, a gift is unique or complex if it is:
A gift other than cash, check or marketable securities and/or
Any large distribution from an estate.
Staff is generally responsible for providing the Board with details of these types of gifts. The Board should also determine if legal counsel should be retained to advise them on complex transactions. Many Health Center’s have an attorney on their Board who is familiar with charitable giving and estate planning, and who may provide pro bono services. The Board should also consult with its CPA firm and its Finance Committee to determine if a formal independent appraisal is needed, or if they should engage a CPA firm to certify the donor’s appraisal.
Ultimately, the Board is responsible for either accepting or rejecting these types of gifts. As part of this process, the Board needs to consider the gift’s consistency in furthering the mission of the organization, outline the communication steps with the donor in the acceptance/rejection process, and advise staff on how to protect the Health Center from any possible repercussions.
Finally, many Health Centers adopt policies on how large gifts without restrictions are to be used. Often these policies state that a portion of large unrestricted gifts fund operational reserves or help to grow an endowment.
Gifts of Real Estate
Gifts of real estate can include many different types of properties: commercial real estate, primary residences, vacations homes, vacant properties, farms, etc. All these types of properties can be acceptable forms of gifts, but only if proper policies and procedures are in place.
Environmental issues are one of the biggest potential liabilities for a Health Center in accepting real estate gifts. Many people think this is only a concern with commercial or industrial property but, without the proper due diligence, there are risks with all types of donated real estate. Most importantly, issues must be identified before the Health Center takes title to the property.
As an example, a residential home may have an issue with radon gas or a buried oil tank that is leaking. Neither of these issues can necessarily be identified via a visual inspection. It is important for the Health Center’s policies to reflect that a level one environmental assessment will be performed on all properties, and a level two assessment will be performed as deemed necessary by the Health Center.
Other issues regarding gifts of real estate include the real estate market itself. The Health Center must gain expertise within the real estate market in which the property is located. This is done through upfront analysis and working with a licensed real estate professional, as well as obtaining a qualified appraisal. By properly evaluating the marketplace, the Health Center will have a better understanding of the timing of the cash flow from the gift and the donor will have a better understanding of the value of the deduction.
Not only does the Health Center need to have strong policies and processes in place for these types of transactions, they also have to make sure the CEO and the Board of Directors understand the complexities of these gifts. Board education is the key to ensuring they are well versed on the risks and rewards related to gifts of real estate.
Finally, and most importantly, don’t go it alone. It is essential to have an attorney who is well versed in real estate law representing the organization. It may look like a straight-forward transaction but, without the proper legal guidance, that dream gift can turn into a nightmare.
If you develop the proper policies, along with the appropriate procedures (checklists are critical), and educate your CEO and Board, your Health Center could benefit tremendously from these types of gifts.
Charitable Auctions – Tips and Best Practices
Transparency regarding the deductibility of items purchased and donated at a charitable auction is key. Letting your supporters know up front the basic rules related to these transactions will prevent any hard feelings resulting from misperceptions about the process. Of course, everyone’s tax situation is different and most of us are not attorneys. Therefore, it is important to disclose that the information you are providing does not constitute legal or tax advice. Every individual should consult their own tax professional as to the deductibility of donated items and items purchased.
Deductibility for Buyers
A common misconception about charitable auctions is that any payment a buyer makes for an item is a charitable contribution to the sponsoring charity. In fact, a charitable contribution results only if the amount paid for the item exceeds its fair market value. The fact that the item was donated to the charity does not change the result. The buyers have engaged in a quid pro quo transaction in which they received value for the payment they made. A quid pro quo transaction is not a charitable gift, nor can it be used as a tax deduction.
Donations of Use of Property
Only the direct expenses related to the donated use of property can be deducted by the donor. Donations of use of property are considered donations of partial interest of real estate and are not tax deductible. This includes donations of use of a personal vessel as highlighted in the following example provided by www.nonprofitissues.com:
For our charity auction, a donor provided a getaway sailing weekend complete with meals, water taxi and accommodations on the sailboat. The donor also captained the boat for the trip. The trip sold for $2400. What can the donor claim as a charitable deduction?
For the donor who supplied the boat, the meals and the captaincy, the only deduction is for the out-of-pocket costs of the trip, such as food, fuel or docking fees. The captaincy and use of the boat are services that are not deductible.
Maintaining credibility with your supporters is critical. Therefore, your Health Center should be prepared to explain the limited benefits of contributing to and purchasing from these events. The appropriate information should be included in solicitation for donated items and in invitations mailed to patrons announcing the event or auction.
At the time of the auction, you should have readily available information summarizing the deductibility of payments made by successful bidders. The good faith estimated fair market value of each item should be prominently displayed. Dealing fairly and openly with donors and bidders early in the process will minimize unpleasant confrontations with friends and supporters of the organization after the event.
Finally, it is important to remember that those who donate and purchase items for your Health Center’s auction are there to support your mission. Although the tax deductibility of the transaction may be important to them, supporting your mission often outweighs the financial benefits. Remember, they are there first and foremost to support your good work in the community.
As you can see, charitable contributions can be a tremendous value to a Health Center. A strong gift acceptance policy will help your organization and the donor from having any misunderstanding about the process. Most importantly, this policy will protect your Health Center and the donor.
If you have any questions about this blog, please feel free to contact us at firstname.lastname@example.org.
*Prior to returning to healthcare, Bill spent eleven years as the Executive Vice President and Chief Financial Officer for the Community Foundation of Collier County in Naples, FL.