Contribution Policy

A ministry may have an underlying sense that some contributions should be carefully reviewed before accepted. However, unless contribution issues are formalized, a ministry may face several risks:

  • A contribution may be accepted that costs the ministry more than the value or amount of the contribution.
  • A contribution may be accepted that requires special reporting or handling, but failure to address these issues may result in liability to the ministry.
  • Weak, ambivalent, or inconsistent communication with the prospective donor caused by internal uncertainty or weak processes may result in the loss of a good, valuable gift.
  • Senior executives who have been promoting a gift from a donor may feel they have lost credibility or a relationship if the gift is rejected unexpectedly.

This document highlights some of these important issues and suggests a plan for developing a contribution policy for your ministry.

Noncash gifts generally

Noncash gifts may represent additional management and processing expenses, and there may be a delay in obtaining cash to help the ministry. Additionally, noncash gifts often have specific risks and reporting issues associated with them.

The donor’s benefit may be the least obvious. In many cases, the donor receives a substantially better tax benefit than if the donor sold the asset and gave the proceeds to the ministry. For example, with real estate appreciation over the last 10 to 20 years in some parts of the country, it is easy to imagine a situation where giving a $1,000,000 piece of real estate would save $200,000 to 300,000 more in taxes than the sale of the same property by the donor, and making a contribution of the proceeds.

Securities: publicly traded and closely held

Publicly traded securities present relatively few problems to charities receiving them as noncash gifts. To protect the donor’s deduction, ownership of the securities must be completely transferred before they are sold.

Privately held securities, on the other hand, may present valuation and disposition issues. The best market for the securities may be the privately held company or another shareholder. Even so, no contract or agreement to sell them should be made before the ministry has complete ownership.

Real estate

Real estate, though a fairly common contribution, may present the most risks. Potential issues include

  • obtaining clear title;
  • identifying any encumbrances or obligations associated with the property;
  • confirming the lack of any environmental problems (While past owners may have created a problem and may also be liable, the current owner—including the charitable recipient of a real estate gift—can be held liable to pay for all environmental clean-up costs. The cost of required clean-up may be greater than the value of the property); and
  • assessing risks associated with management and tenants for rental properties.

In some cases, the donor may have already identified a possible buyer. It is important that the donor not sign any agreement to sell the property to the buyer.

Limited Liability Company interests, “S” Corporation stocks, Limited Partnership interests

Contributions of Limited Liability Company (LLC) interests, “S” Corporation stock, and Limited Partnership interests present the same valuation and disposition issues as closely held corporations.

In addition, the tax consequences of transactions within the LLC, “S” corporation, or limited partnership are passed through to the owner of the interest. Individuals desire this attribute because it enables them to personally claim losses of the entities. An exempt ministry owner, however, often will owe tax on its share of net income in the entity. It may even have a tax liability when no income is distributed.

A ministry’s income associated with “S” corporation stock is always taxable.

Deferred giving

Tax law allows donors to establish specific kinds of trusts or annuity contracts that provide (a) the donor with a current contribution deduction, (b) the donor with an income stream over several years or often until they die, and (c) result in resources to the ministry when the trust or contract terminates. These provide long-term benefits to ministries receiving them but require additional management and filings during the period prior to termination.

Prior to accepting any deferred gift arrangement, a ministry should assess whether it will be able to effectively manage it over a sustained period of time. Issues to consider include

  • identifying filing requirements for federal and state tax returns (requirements vary by state);
  • analyzing cost of management to identify appropriate minimum sizes consistent with good stewardship;
  • planning for active, effective oversight of investments to obtain reasonable return;
  • having documents reviewed by an attorney before first usage and periodically (every 3–5 years) thereafter; and
  • if ministry is “Trustee,” determining if the ministry’s personnel responsible for managing and investing trust assets understands the ministry’s fiduciary obligations as trustee.

Donor advised funds

Donor advised funds are a popular, lawful method for a donor to receive a contribution deduction in one year, and generally influence the gift’s use by an entirely different ministry in a later year. Some ministries have used donor-advised funds as a tool to cultivate and encourage relationships with donors.

Congress adopted a specific definition of “donor advised fund,” which may apply to contributions that a ministry might not ordinarily think of as donor advised funds. Though there are some exceptions, the definition is intentionally broad (IRC § 4966(d)(2)): The term “donor advised fund” means “a fund or account—

(i) which is separately identified by reference to contributions of a donor or donors,
(ii) which is owned and controlled by a sponsoring ministry, and
(iii) with respect to which a donor (or any person appointed or designated by such donor) has, or reasonably expects to have, advisory privileges with respect to the distribution or investment of amounts held in such fund or account by reason of the donor’s status as a donor.”

The legal definition does not require that the donor be able to control the use of the funds; it is enough that the donor expects to be able to give advice for the use of the funds. A donor advised fund can exist without a written agreement, since it only takes continuing identification of the donor’s contribution and a reasonable expectation of an advisory privilege. A donor advised fund without a written agreement, however, is an illegal donor advised fund, and donors do not get a contribution deduction when making gifts to an illegal donor advised fund.

Ministries establishing or already maintaining donor advised funds should consult with a tax attorney regarding appropriate documents and policies, to assure compliance with the statute and related regulations.

Donor-restricted gifts

Often a ministry will solicit contributions for a specific purpose, or a donor will make a gift for a specific purpose. There can be both legal and tax implications from such restrictions. The accounting and tax issues associated with donor-restricted gifts are addressed in The Guide to Charitable Giving for Churches and Religious Organizations, by Dan Busby, Michael Martin, and John Van Drunen, published by ECFAPress.

Personal property

The tax deduction for tangible personal property (other than vehicles, which are discussed below) depends in part on the use of the property by the ministry.

  • If the property is used by the ministry in accomplishing its exempt purpose, the donor’s contribution deduction is equal to the fair market value at the time of the donation.
  • If the property is sold, the donor’s contribution deduction is only the donor’s basis (typically what the donor paid for it, or if it has been used in business, the depreciated value).

While most personal property goes down in value over time, antiques and artwork may appreciate greatly in value. Prospective contributions of these types of gifts must be handled more carefully.

Vehicle donations

In 2004, due to substantial abuses, Congress limited the deduction for vehicles contributed to charity. The vehicle rules apply to (1) motor vehicles that are manufactured primarily for use on public streets, roads, or highways; (2) boats; and (3) aircraft. They include specific handling and reporting requirements and time limits based on the donation date and the vehicle’s use or sale. Form 1098-C is filed by the recipient ministry with the IRS, with copies to the donor. The instructions to the form provide general guidance.

Charities are subject to substantial penalties if they make fraudulent certifications or fail to provide the required certifications for vehicle donations.

Intellectual property donations

If a donor contributes a patent or other gift of intellectual property (other than certain copyrights or inventory) to a charitable ministry, then the donor’s initial charitable deduction is limited to the taxpayer’s basis in the contributed property or its fair market value, whichever is less. The intellectual property donor is allowed to take an additional charitable deduction based on a percentage of the income the charitable ministry receives for several years with respect to the donated property. The ministry is required to file Form 8899 with the IRS and donor within one month after the end of its fiscal year, to report the income it received from exploitation of the intellectual property.

Noncash gift reporting forms

For noncash gifts, ministries and donors have reporting obligations in addition to the normal receipting and quid pro quo requirements. They are summarized here.

  • Gifts less than $500: Donor keeps record of gifts, but no special valuation documentation requirements.
  • Gifts of $500 to $5,000: Donor files Form 8283 with tax return, which includes a written description of gift, but the ministry does not sign Form 8283. An appraisal is not formally required. (See below for different reporting of vehicle donations.)
  • Gifts of over $5,000 to $500,000: Donor must obtain a qualified appraisal and include appraisal summary, signed by donee ministry (Form 8283), with donor’s tax return.
  • Gifts of over $500,000: Donor must obtain a qualified appraisal and include appraisal summary, signed by donee ministry (Form 8283), with donor’s tax return. Donor also includes the actual appraisal with donor’s tax return.
  • Sale or Disposal of Donated Property: A ministry must file Form 8282 if it sells or otherwise disposes of any property within three years of the donation for which it signed Form 8283.
  • Intellectual Property: Above rules are followed, but in addition, ministry files Form 8899 annually to report income earned through exploitation of intellectual property.
  • Vehicles: Ministry prepares Form 1098-C, according to its instructions, files with the IRS and provides copies to donor.

Note: The IRS has acknowledged that a Form 8283 is not complete substantiation for a noncash gift.

Gift Policies and Procedures


  • Process
  1. Optimally, the first draft of the policy would be developed by a committee with representatives from development, accounting and finance, and risk management. In advance of the first meeting, the committee members should be provided with this outline and other background materials.
  2. Outside professionals (attorney or accountants) might usefully participate in meetings. At a minimum, the draft document should be reviewed by the ministry’s attorney and auditors for suggestions.
  • Policy
  1. A written gift policy should commence with a clear, concise statement of the philosophical framework of the ministry’s gift solicitation and acceptance policies. Initially, this statement should convey a positive view of development practices. It should acknowledge that gifts are critical to the continued existence of any ministry or charitable ministry and are to be encouraged. 
  2. Generally applicable limitations should be addressed. These could include limitations imposed by: (1) law; (2) the ministry’s founding documents; (3) risk of adverse publicity; and (4) needs of constituents which ministry serves.
  3. Cash gifts. A gift policy should identify the ministry official to whom checks should be delivered, the appropriate payee, and the manner in which the gift date will be determined.
  4. Securities. Regardless of the security type, the policy should outline methods of execution and delivery to ensure that there is in fact a legal transfer of ownership to the institution. The policy should state to whom the securities should be delivered and the manner in which the gift date will be determined. Additional issues for non-publicly traded securities may include procedures for valuation, assessment of income potential, and restrictions on ability to sell.
  5. Real property. Among the most important issues to be addressed in a gift policy are gifts of real property. Liability risks and management while holding the property result in some ministries having separate written policies focusing specifically on real property gifts.
  6. Tangible personal property. Valuation and procedures for handling and marketability are particularly relevant. A gift committee may be helpful for assessing proposed gifts.
  7. Planned giving. Often ministries have separate policies for deferred and planned giving. All of the issues relevant to the foregoing are relevant to planned gifts. Legal and tax documentation and ongoing relationships must also be addressed.
  8. Donor’s intent and restrictions. 
    • The gift policy should identify the types of accounts, e.g., unrestricted, restricted, or endowment, to which gifts may be donated and what, if any, requirements there may be with respect to the acceptance of gifts to each.
    • This section should also describe how the institution handles gifts which are not accompanied by any donor instruction concerning their use. Many institutions simply place such gifts in their unrestricted funds.
    • Finally, the gift policy should inform prospective donors, as well as individuals in the ministry how gifts will be credited.
  9. Donor advised funds. Often ministries have separate policies for donor advised funds. All of the issues relevant to the foregoing are relevant to donor advised funds. Legal and tax documentation and ongoing relationships must also be addressed.
  10. Vehicles. A ministry that may accept contributions of vehicles must have policies and a process in place that address the detailed reporting and contribution deduction requirements in the statute and IRS forms. 
  11. The policy should provide a process for accepting and effectuating donations, but should not be overly narrow or limiting. Almost as detrimental as no policy at all would be a policy which unduly restricted the types of gifts that might be accepted. Any policy should be drafted with a view toward allowing appropriate flexibility and creativity.
  • Implementation
  1. Orientation. Once the ministry has adopted the policy, a designated officer should conduct a comprehensive orientation. All fundraising elements, including auxiliaries, field representatives, and outside consultants should be included.
  2. Gift Committee. An effective gift committee can lend vital support to gift policy administration. Given the scope and complexity of the issues involved, it is virtually impossible for one individual to resolve them all. Only through a team effort can an institution hope to identify and successfully address all the relevant considerations.
  3. Brochure. It might be useful to develop a brochure or pamphlet summarizing the gift policy for the general public and potential donors in particular. Such a document would be most effective by emphasizing elements that encourage giving, thereby averting the impression that might otherwise be conveyed by the necessary statement of controls and restrictions in the policy.


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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