Have you heard this one? An elderly woman decided to make one large charitable gift this year in December but she was not sure which of three worthy organizations to support. In April, as a test, she sent each organization a $100 contribution. The first organization processed the gift according to its usual standards and the donor received a pre-printed receipt ten days later. The second organization temporarily misplaced the check, deposited it a month after it was received, and sent a form letter the following week. At the third organization, the person who opens all gift envelopes immediately wrote a personalized letter acknowledging the gift and the executive director signed the letter, added a personal note and put it in the mail. Which organization is more likely to get the large year-end contribution?
Gift acknowledgement, tracking, and reporting are functions of gift administration. Planned gifts—usually given with assets accumulated over many years—often require additional administrative expertise and oversight than annual gifts—frequently given out of current income. Let’s look at each of these functions, one at a time.
An acknowledgment letter is a written expression of gratitude for a contribution sent by the organization to the donor that complies with IRS requirements for the type of gift received. (Yes, different types of gifts have specific requirements.)
It must be prompt. I recommend your gift acceptance policies include a provision that IRS-compliant acknowledgements are sent within two business days of receipt of gifts. The deadline may be extended for exceptional circumstances but putting the customary expectation in writing and holding staff members responsible encourages timely acknowledgements. Such thank you letters should also be warm and personal—just the kind of letter you would like to receive.
It must also be accurate. The Internal Revenue Service offers several valuable documents through its Website, www.irs.gov, to help you comply with its regulations. Here are two of the most useful:
Publication 526, “Charitable Contributions,” describes contributions donors can and cannot deduct from federal income taxes, contributions of real estate and personal property, limits on deductions, and other useful information.
Publication 1771, “Charitable Contributions—Substantiation and Disclosure Requirements,” explains the federal tax law for charitable organizations that receive tax-deductible contributions and for taxpayers who make contributions. It details the requirements for written acknowledgments, defines the goods or services organizations may provide for contributions, and describes requirements for unreimbursed expenses—with many useful examples.
You’ll want to keep such publications in your office as handy references.
Accounting for and Tracking Gifts
Contributions should be recorded and deposited by the finance department within 24 hours of receipt unless special circumstances warrant further review of the gift. Some types of planned gifts, such as those with donor restrictions or made with unusual assets, will require special treatment and, usually, a written gift agreement. Gifts of certain sizes or for specific purposes will be tracked in separate funds.
Gifts must be tracked from the notification that the gift instrument has been signed, through receipt of the gift itself, to expenditure of the gift. (Endowment gifts, of course, will be invested in perpetuity, with a portion of the earnings expended annually.) Some planned gifts take years or even generations to be fully realized by the organization.
Split interest gifts—those that have two distinct parts or “interests:” a charitable interest and a non-charitable interest—often are overseen by third party gift administrators or custodial services. They provide services such as timely payments to donors and tax information to donors. Since your organization is ultimately accountable to the donor, however, you will want to monitor these services.
Gifts are reported to donors and to the organization’s constituents and the general public, often through printed and electronic annual reports. Planned gift donors may be listed separately as members of a legacy society or heritage club. By prominently recognizing such donors, the organization not only honors the donors but also markets the planned giving program.
Requests by donors for anonymity, once accepted, must be honored. In the gift agreement, include specific instructions from the donor about expectations regarding reporting. In order to avoid using the donor’s name in internal communication, establish a separate gift name and safeguard records and files.
And remember gifts above a certain amount or particular kinds of gifts, such as closely held stock or real property, must be reported to the IRS.