Nonprofit Strategies: Know what strings are attached to your gifts

barry@sloccf.org April 5, 2012 

A donor asks for her donation back. Can you give it back? Should you?

A charitable gift is made when a donor transfers ownership of assets, such as cash or stock, to the nonprofit. Because the nonprofit now owns the assets, it may not be obligated to return them upon request. It is important that the gift transfer document, such as a cover letter or trust, include any restrictions or conditions on the gift. When the nonprofit accepts the assets, it accepts the strings attached to them.

If the nonprofit does not honor the terms of the gift, the donor may be entitled to receive it back. For example, the donor clearly states in writing that the gift is to a proposed program and the program is never started. The conditions weren’t met, and the gift could be returned. Conditional gifts are not tax deductible until the conditions are removed because the donor retains control of the gift until the conditions are met. However, if the gift-transfer document includes a provision for the nonprofit to use the donation in some other way if the program isn’t started, then the donor has transferred ownership of the gift to the nonprofit.

If the terms of the gift have been honored and the donor requests it back, the gift shouldn’t be returned. Gifts that are returned without a solid legal basis may jeopardize the nonprofit’s tax-exempt status; the IRS may consider the organization to be serving the private interests of donors and not its tax exempt purpose.

Any request by a donor to return a gift must be taken seriously. The organization must verify that the donor’s restrictions and conditions have been honored. Denying the request may subject the nonprofit to litigation.

Legal advice will help the organization make a good decision.

Barry VanderKelen is executive director of the San Luis Obispo County Community Foundation. Contact him at barry@sloccf.org.

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