When Gifts Come with Strings Attached

How churches can avoid trouble with a strong gift acceptance policy.

Whether it is a car, jewelry, or real estate, every church has been faced with a gift that has the potential to cause more problems than its value. Some gifts come with restrictions, some gifts are only valuable in the eyes of the donor, and some come with continuing costs to maintain.

Churches many times would be better off without the gift, but donors always believe that their gift will benefit the church. Rejecting gifts may place church staff, committee members, or directors in uncomfortable positions and may even damage relationships with church members.

Churches can avoid many of the traps associated with these types of gifts by carefully crafting a gift acceptance policy. This policy provides staff members with the guidance necessary to navigate the sometimes-treacherous waters of unusual gifts.

Before Someone Gives

Prior to drafting a gift acceptance policy, the church should seriously consider several issues surrounding noncash and other unusual gifts. Churches should understand they are not obligated to receive all gifts offered to them. Churches that feel obligated to accept any gift offered by a donor risk a costly situation resulting not only in potential monetary loss but also a loss of relationship with the donor.

There are several broad issues to be resolved prior to the drafting of a gift acceptance policy.

  • Can it be used by the church in its ministry? Does the church only desire to accept gifts that can be used in its immediate operations? For example, if the church operates an outreach to the homeless, it may be prudent to accept donations of used clothing. However, if the church cannot utilize used clothing directly in its operations, its policy may specifically state the church will not accept the donation of used clothing or household items.
  • Can the gift immediately convert to cash? Does the church wish to accept gifts that can only be readily converted to cash? For example, is it willing to accept a stock donation, but not accept a piece of real estate, since the ability to sell the property for cash may take a long time?
  • Can the church live with gifts that come with strings attached? Gifts with restrictions are fairly common—and sometimes costly. Donors often place unreasonable restrictions on a gift as it relates to the use of the property or the disposal of the property. Some restrictions result in a gift not being complete- ly given to the church. For example:
    • A church accepts a gift of a house adjacent to its property. The donor restricts the gift by requiring the church to allow her to occupy the house until her death. Many years later, the donor could still occupy the house, delaying the church’s expansion plans.
    • A donor gives an office building to a church, but restricts the building’s sale for at least three years. The donor has not made a completed gift to the church until the three-year restriction expires.
    • Can we afford it? Many noncash gifts require an annual monetary commitment, such as insurance, storage, disposal costs, and taxes. For example, a church accepts the gift of an expensive car. The church believes that disposing the car would offend the donor, so it insures the car each year and pays to store it. Since the church is unwilling to sacrifice the relationship with the donor by disposing of the car, it bears unexpected annual costs it shouldn’t pay.

The Benefits of a Policy

After some general discussions regarding the above factors, a church should adopt a formal gift acceptance policy. The benefits of a gift acceptance policy include:

  • Clarity
  • Guidance on acceptable gifts
  • Procedures that must be followed
  • Timing considerations to be managed
  • Receipting policies
  • The handling of restrictions
  • Valuation considerations
  • Disposal guidelines
  • Special issues for specific types of gifts.

While this policy is helpful to donors, it is most helpful for staff to use to navigate the various aspects of unusual gifts received by the church.

Acceptable gifts

The policy should list out the types of gifts that the church is willing to accept. The policy should specifically address gifts in the following areas:

  • Personal property, such as clothing and household goods
  • Transportation equipment
  • Securities (Consideration should be given to receiving both publicly traded securities and closely held securities.)
  • Real estate
  • Remainder interest in property
  • Jewelry
  • Collectibles
  • Life insurance beneficiary designations
  • Charitable trusts
  • Bequests

Procedural Issues

A good gift acceptance policy will set out clear guidelines to assist both staff and donors with answering the following:

  • Who can approve the acceptance of the gift?
  • What type or level of gift requires specific action by the finance committee or other appropriate authority?
  • Who is authorized to sign the Form 8283, Noncash Charitable Contribution, for the donor? (The donor must file Form 8283 with his tax return to claim noncash contributions. For many gifts valued at more than $5,000, the form must be signed by the church acknowledging the receipt of the gift.)
  • Who is authorized and responsible for keeping a copy of the Form 8283 for the church’s files?
  • Who is responsible for filing Form 8282 with the IRS? In the event the church sells donated property within three years of the date of the gift and the church had originally signed the donor’s Form 8283, it is required to file Form 8282, Donee Information Return (Sales, Exchange or Other Disposition of Donated Property).
  • Who is responsible for completing the Form 1098-C, Contributions of Motor Vehicles, Boats and Airplanes, for donations of modes of transportation?

Timing Issues

There are several areas of timing that may be addressed by the policy:

  • Time to perform due diligence: Donors are infamous for attempting to complete noncash gift donations in a short period of time. This is normally due to the goal of completing the gift prior to the end of the tax year.
  • While the due diligence to accept a gift of publicly traded stock is almost nonexistent, the due diligence to make a decision regarding accepting a piece of real estate is more time consuming. Time may be needed to determine if the donor has clear title to the property and to have an appraisal performed. Significant time also may be needed to determine if the property has environmental hazards. It is absolutely essential for churches to condition the acquisition of any land or buildings, whether by purchase or donation, on a full environmental analysis of the property by a competent professional and an opinion that the property contains no possibility of environmental contamination. Some properties are environmentally contaminated with lead, asbestos, or radon, by leaks from underground tanks, and so on. Churches that acquire such properties can face unexpected and significant costs in addressing and eliminating the source of contamination.Therefore, it’s critical the policy address the timing of certain types?of gifts, especially real estate. For example, it may state that no gift of real estate will be accepted later than November 30th of each year.
  • Timing as to the date of the gift: The policy should state that a gift will not be considered completed until either a clear transfer of title can be completed and appropriate agreements are formally executed or all restrictions have been released.
  • Time to dispose of the gift: If the gift cannot be used within the immediate operations of the church, the policy may wish to clearly state that the gift will be disposed of in the quickest manner available to the church. This puts the donor on notice that their gift might be disposed of in the near future.

Receipting Procedures

Donors are often confused by the standard receipting practices of churches for “other than cash” donations. The policy should state that receipts issued for noncash items will contain only a description of the gift and will not contain the value of the gift given.

Donor Restrictions

Churches should carefully consider donor restrictions. The gift acceptance policy should provide clarification by stating:

  • Restrictions that violate either the church’s exempt operational test as defined by the Internal Revenue Service or that violate the church’s corporate charter will not be accepted.
  • Gifts that are specifically designated or restricted for an individual will not be accepted.
  • The church considers all restrictions as suggestions and that the ultimate decision as to the ultimate use of the gift is to be determined by the church’s governing body.
  • In cases where the church may?have solicited funds for a specific purpose, such as a building fund, any excess funds are to be used at the discretion of the governing body.
  • The endowment of funds requires a written agreement in order to provide clarity to all parties.
  • A time restriction as to the disposal of a gift, outside of an endowed gift, may result in an incomplete gift.
  • All restricted gifts are to be approved by the appropriate committee.

Valuation Considerations

A church has an obligation to value all of the items it receives. This includes noncash donations. The portion of the gift acceptance policy for internal use should direct the accounting staff to record all of the property received and account for any subsequent dispositions. These are two separate accounting transactions, but are often mistakenly treated as one transaction. For example, when a church receives a gift of stock, the stock must be recorded in the accounting records as a noncash gift and as an investment of the church. Then, when the stock is sold, the transaction is recorded as a sale of an investment. The church should not wait until a gift is sold and then account for the transaction at that time only.

Disposals of Gifts

As previously discussed, not all gifts are desired nor are all gifts useful to the church. However, disposing of these gifts must be handled delicately in order to not offend the donor. Some gifts are very personal to donors and the donor may place a greater value on the gift than can be reasonably obtained. Stating the church’s policy on the disposal of noncash gifts will help match the donor’s expectations to the actions taken by the church. Some special considerations include:

  • Real estate: The church may want to sell real estate as quickly as possible if the real estate cannot be used in the operations of the church. This may mean a fire sale so that the church avoids the costs of continuing to own a property while holding out for a greater sales price.
  • Jewelry: All gifts of jewelry to a church are a gift of something personal. Additionally, the gift is never worth what the donor believes it is worth. The church should consider disposing of these items through a dealer in another locality. It is not recommended that the items be sold locally or to other staff members or church members.
  • Clothing and household items: The church should reserve the right to dispose of these items through their donation to another nonprofit that can benefit.

Due to the issues and complications of related party transactions, the church may also desire to have the policy prohibit the sale of any donated asset to a staff member, committee member, board member, or any other person in a position of influence or control.

No policy can anticipate all of the special issues that might arise from a gift, and this is also true for gift acceptance policies. The object of the gift acceptance policy is to anticipate the more common scenarios and provide church staff members a preplanned program to address and resolve donor issues in this area.

It is much easier for a church to decline a donor’s gift if the church has a policy stating that it doesn’t accept certain gifts.

It also is much easier for staff members to know what the church is and is not willing to accept as a gift, and the internal procedures to follow. This provides assurance that all compliance issues surrounding unusual gifts will be followed, ensuring the church meets all regulatory requirements.

Elaine L. Sommerville is a CPA and has worked in public accounting for 25 years, primarily focusing on tax compliance aspects of nonprofit organizations. She is currently the sole shareholder of the firm of Sommerville & Associates, P.C. She serves as editorial advisor for Christianity Today’s Church Finance Today.

This article first appeared in Church Finance Today, December 2012.

Elaine L. Sommerville is licensed as a certified public accountant by the State of Texas. She has worked in public accounting since 1985.

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