New Board Member Training

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Fiduciary Responsibility

Income

Introduction

There are many ways in which money and other assets can flow into a nonprofit. Some of these funds will be considered “restricted” while others will be “unrestricted”. This lesson outlines some types of donations organizations can receive and speaks to how funds should be processed.

Donations

Types of Donations

There are multiple types of donations and the tax-deductible status is specific to each type. This lesson is intended as a brief overview and not an exhaustive study on donation income.

  • Cash/Monetary Donations:
    • One-Time Donations
    • Recurring Donations
  • Quid Pro Quo Donations:
    • Occurs when something is given but something is given in return
    • Example: Tickets to dinner are $50 but the fair market value of the dinner is $20.
      • The receipt from the organization will say that the donation was $30 (the difference between the price paid and the fair market value)
  • Stock Donations:
    • Stocks can be donated rather than selling or liquidating the security
    • To transfer stock, either an individual or their broker fills out a transfer authorization form.
  • Planned Gifts:
    • Bequest
    • Planned Gift
      • Charitable Remainder Trust
      • Charitable Gift Annuity
      • Charitable Lead Trust
      • Life Tenancy Agreement
    • Life Insurance
    • Qualified Retirement Plan
  • In-Kind Donations:
    • Can include goods, services, time, or expertise (though not all are able to be written off on taxes)
    • A common pitfall is someone offering pro-bono hours and writing it off on taxes
    • IRS does not track time or space. They track money and things.
    • Goods worth over $5,000 need to be appraised to be tax-deductible
  • Vehicles:

IRS Rules for Websites on Receiving Donations, Sales

Full IRS Documentation on Fundraising and Advertising on the Internet

Receipt Requirements for Donations

  • In order for a charitable contribution to be considered tax-exempt, the IRS has substantiation and disclosure requirements. (Link to Requirements Here)
  • Donors must have a record of the contribution or a timely written communication for any monetary contribution

IRS Rules on Charitable Contributions: Written Acknowledgments

Donor Acknowledgement vs. Advertising for Donors

  • Nonprofit organizations can publicly thank corporate donors however cannot be in or create a commercial for the donor.
  • Qualitative statements are to be avoided, example “Their sandwiches are so great!”

Restricted Donations and Grants

  • If a donation has a restriction or earmark attached to it, the organization is obligated to honor the intent of the donation.
  • Money from these types of donations is called Restricted Funds and will be segregated in the organization’s books.
  • Earmarks/restrictions cannot be made out to a specific person.

Unrelated Business Income

  • Occurs when an organization starts a business to generate revenue that doesn’t necessarily align with the organization’s mission or purpose.
  • Income from related businesses is subject to tax.
  • A fundraiser is different than a business. An example is a series of bake sales to generate revenue vs. starting and running a bakery.

IRS Guidance and Rules on Unrelated Business Income Tax