Child Adoption Fundraising and Support

Child adoption is generally an expensive process—often costing twenty to thirty thousand dollars per child. Therefore, it is not surprising that ministries and givers often seek ways to provide financial support to couples involved in the adoption process.

Many ministries ask: “Can we provide assistance to adoptive parents?” As with many issues in tax law, the answer is: “It depends on the facts and circumstances."

Under the tax law, charitable contributions must be made “to or for the use of” a qualified organization. Additionally, if the ministry does not have full control of the donation and discretion to ensure that the funds will be used to carry out the ministry’s functions and purposes, the IRS may consider these gifts as conduit or pass-through transactions, which do not qualify for a charitable receipt by a ministry or a charitable deduction by a giver and could endanger the tax status of a ministry. 

The following are some of the issues a ministry should consider before providing support to adoptive parents:

  • Gifts to or for adoptive parents by a ministry whose purpose and nature are not consistent with such gifts. If gifts by a ministry to adoptive families are not consistent with the broad limits imposed by the ministry’s purpose and nature, the gifts are generally not a proper use of tax-exempt funds.
  • Gifts to or for adoptive parents from the operating fund of a ministry. If adoption assistance is consistent with the ministry’s purpose and nature, a ministry generally has a sound basis to provide assistance based on financial need for adoptive parents from the ministry’s unrestricted funds. As a best practice, the payments should either be made by the ministry directly to the adoption agency or reimbursed to the adoptive parents based on adequate documentation to assure that the funds are properly used.
  • Gifts to a ministry’s adoption fund not preferenced for a particular adoptive family and gifts for an adoptive family from the fund. (Note: A “restriction” limits the ministry’s use of the funds—a “preference,” “desire,” or “expression of interest” generally does not limit the ministry’s use of the funds.)

    The following observations relate to adoption assistance provided by a ministry that is consistent with the charity's purpose and nature (e.g., adoption-related grants or gifts further the ministry’s purpose and nature):
    • The giver’s intent is to benefit the adoptive family, not the ministry. If a giver does not intend to benefit the ministry’s purpose and nature in assisting adoptive families and only wishes to benefit a particular adoptive family, the payment generally does not constitute a charitable gift and is problematic under ECFA standards and tax law.
    • The ministry does not exercise full control of the funds and discretion as to their use. If the ministry does not demonstrate adequate control and discretion over the funds, both in terms of policy and practice, the payments generally do not constitute charitable gifts. This scenario is problematic under ECFA standards and tax law.
    • The giver’s intent is to benefit the ministry, and the ministry exercises full control of the funds and discretion as to their use. Adoption-related gifts based on financial need that meet the giver’s intent test and the ministry’s control and discretion tests will generally qualify as charitable gifts.
  • Gifts to a ministry preferenced for a particular adoptive family and gifts for the adoptive family from the fund. Even if adoption assistance is consistent with the ministry’s governing documents, gifts that are preferenced by a giver for a particular adoptive family may raise conduit or pass-through transaction issues. To be deductible, the ministry must generally:

    • have control and discretion over the contribution (including preventing a prospective adoptive couple from making gifts to the ministry to be used to make a grant or loan to themselves) without any obligation to benefit a preferenced individual,
    • obtain adequate information about the potential recipient of the funds (including financial resources),
    • avoid refunding gifts to givers if a particular adoption is not completed, and
    • avoid conflicts of interest between those approving and receiving a loan or a grant.

Providing Assistance to or for Adoptive Parents
Implications for Charitable Deduction Purposes

 

Type of Gift

 

Qualifies as a Charitable Deduction

 

Gift from a charity to/for an adoptive family based on need 1 2—not based on gifts designated by the donor(s), e.g., from the charity’s general fund.

 

Yes

 

 

Gift from a charity to/for an adoptive family based on gifts restricted for the charity’s adoption fund but not restricted or preferenced for a particular adoptive family.

 

Yes

 

 

Personal gifts from one individual to/for another individual to assist in an adoption.

 

No

 

 

Gift from a charity to/for an adoptive family based on gifts preferenced for a particular adoptive family and the donor’s intent is to benefit the adoptive family, not the charity.

 

No

 

 

Gift from a charity to/for an adoptive family based on gifts restricted for a particular adoptive family. The charity is unable to provide adequate discretion and control over the payment because of the donor(s) restriction.

 

No

 

 

Gift from a charity to/for an adoptive family based on gifts restricted for a particular adoptive family—the adoptive family and the donor are the same taxpayer.

 

Generally, no (may be tax fraud because of the circular nature of the transaction)

 

 

Gift from a charity to/for an adoptive family based on gifts preferenced for a particular adoptive family. The charity exercises adequate discretion and control over the gift.

 

Based on facts and circumstances

 

 

1  As a best practice, the payments should either be made directly to the adoption agency or reimbursed to the adoptive parents based on adequate documentation to assure that the funds are properly used.

2  Personal gifts from an individual to another individual may have estate tax implications if the gifts to an individual exceed the annual gift tax limitation.

 
 

Before considering accepting gifts of this nature and making related gifts to adoptive parents, a charity should seek qualified legal counsel.

 


This text is provided with the understanding that ECFA is not rendering legal, accounting, or other professional advice or service. Professional advice on specific issues should be sought from an accountant, lawyer, or other professional.

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