DONATIONS. Contributions of Money or Other Property Having Value. Donations usually come in the form of cash contributions to charitable organizations through one or more of the organization's fund-raising activities. However, donations need not be monetary. For example, contributions may take the form of anything from old clothes to the family farm.
For tax purposes, it is important to determine that a gift has occurred (control having passed from the donor to the donee) and that whatever was given has deductible value -- that is, it represents a decrease in the value to the donor, and an increase in the resources available to the donee organization to carry out its charitable purposes.
Complicating such determinations are quid pro quo arrangements in which the donor received something of value from the nonprofit in exchange for the contribution -- a ticket to a play, or commemorative coffee mug, for example. So long as the value of that which was received by the donor is less that the value of that which was transferred to the nonprofit, a donation will have occurred. However, the deductible amount is the difference between the value received by the donor and the full value of the donation.
For many years, the Internal Revenue Service has recognized that the area of "in-kind" donations (nonmonetary gifts of tangible personal property) has been most abused by taxpayers. This concern has extended to Congress, and it has become incumbent upon nonprofits to follow regulations strictly in reporting these gifts and the values exchanged.
Many nonprofits are taking great pains to educate their donors about deductibility issues as a service to the donor and to avoid disputes with either the donor or the Internal Revenue Service. For example, many donors are unaware that the time they spend performing the professional services for a nonprofit that they employ to earn a living are not deductible. On the other hand, the out-ofpocket expenses they incur while performing services for nonprofits are deductible.
In the colloquial, donation often refers to small or below-average contributions and those gifts acquired by nonprofits through special events and broad fund-raising efforts such as donor acquisition mailings, charity golf tournaments, and collection cans. (See also gifts; causerelated marketing).
ROBERT BUCHANAN AND
DONOR. One who gives or donates cash, materials, or other items having monetary value to a nonprofit.
A donor may be an individual; foundation; corporation; local, state, or national governmental agency; association; church; club; or other group of people with common interest in supporting a nonprofit. A donation may include money, tangible personal property items, securities, real estate, or other items of value.
According to Webster's Dictionary, the word gift means "something that is voluntarily transferred by one person to another without compensation." This would seem simple and straightforward when applied to gifts to nonprofits. However, through the years, the courts have applied several tests to determine whether or not a true gift to charity has been made. This has complicated the definition of whether or not there has been a donation.
In the eleventh edition of Tax Economics of Charitable Giving, a publication of Arthur Andersen & Co., S.C. ( 1991), the subjective tests examined donative intent, "detached and disinterested generosity," or "affection, respect, admiration, charity or like impulses" in the heart and mind of the donor. The courts have more recently rejected such tests with one court explaining that "if the policy of the income tax laws favoring charitable contributions is to be effectively carried out, there is good reason to avoid unnecessary intrusions of subjective judgments as to what prompts the financial support of the organized but nongovernmental good works of society."
The more valid measurement of whether or not a deductible gift was made lies in determining that the donor transferred money or property without adequate consideration in return. In a sense, the courts have returned to the dictionary in identifying deductible gifts.
In the real world in which nonprofits must pursue gifts or expire, they must cope with the myriad motivations of donors of all stripes. Donors who have given anything, even nondeductible contributions such as those of their time, still consider themselves to be donors of equal importance to the most generous of the wealthy relative to their abilities to give. Recognizing this, most nonprofts define donors liberally.
Increasingly, research is under way to define the term donor and why they support not for profit organizations. For example, The Seven Faces of Philanthropy attempts to provide a "detailed understanding of the concerns, interests, needs, and motivations of affluent individual donors as . . . by categorizing wealthy donors into seven motivational types" (Prince and File 1994).
ROBERT W. BUCHANAN AND
Arthur Andersen & Company, 1991. Tax Economics of Charitable Giving. 11th ed. New York: Arthur Andersen & Company.
Prince, Russ Alan and Karen Maru File, 1994. The Seven Faces of Philanthropy: A New Approach to Cultivating Major Donors. San Francisco: Jossey-Bass Publishers.
DOWNSIZING. Decreasing, cutting back, retrenching, or streamlining the size and scope of activities of a government or individual agencies and programs within it.