Conflict of Interest chair with book on table

When you truly believe in a cause or issue your favorite nonprofit is addressing, you want everything to be in place to achieve the utmost success. This most certainly means adopting well-written and well thought out policies and procedures.

Make a smart paradigm shift in 2020. Stop thinking about adopting policies and procedures as something you “must” do…just another administrative hassle. Instead, realize that adopting the right policies and procedures protects you and your fave nonprofit, and even more importantly, sets you up for success.

A conflict of interest policy is inarguably one of the most essential policies a nonprofit board adopts. A conflict of interest policy addresses two critically important issues:

  1. Requires board members with a conflict (or a potential conflict) to disclose it.
  2. Excludes individual board members from voting on matters in which there is a conflict.

Who is responsible, and who gets the credit, for your nonprofit being a nonprofit? If you think about it, it’s the IRS! No less an authority than the Internal Revenue Service (IRS) highly encourages nonprofits to adopt specific types of governance policies to limit exposure to abuse, vulnerabilities, and engagement of nonexempt activities. One important such policy is a conflict of interest policy.

Note the IRS Form 990 (essentially the tax return form for nonprofits) directly asks whether the nonprofit has a conflict of interest policy,  how the organization determines when board members have a conflict of interest, and what steps are taken following such a determination.

If your nonprofit already has a conflict of interest policy already in place, great! It may be a good time to hold a board meeting to review it.

If your organization does not have a conflict of interest policy, and/or you’re unsure of what specifics it should include, don’t hesitate to take me up on my free consultation offer.

If you have any questions or want to discuss further shoot me an email or give me a call at 515-371-6077.

puzzle pieces

 What is a Grantor-Grantee Policy?

A grantor-grantee policy outlines how the organization expects the relationship with grantees (other organizations applying for funding or grants) to be structured. (Sometimes you’ll see this type of policy called a funder-grantee policy.) A grantor-grantee policy will address details related to the beginning of the grant application process through evaluation and multiple points in between. The intended audience is both your internal board of directors and staff as well as current/prospective grantees.

This type of policy often sets forth details regarding the complicated details that should allow for a better, more transparent relationship from the get-go with grantees. The policy can be as general or as specific as needed for maximized effectiveness to the organization’s specific situation. I’ll explain some of the “common” points often included in successful grantor-grantee policies below.

Benefits of a Grantor-Grantee Policy

By outlining the process and details of grants, your organization benefits from having an approved, agreed-upon plan of action. This is a proactive step toward avoiding wasting time. A grantor-grantee policy also makes it simpler to navigate unexpected situations or complexities as an organization.

Grantees will certainly benefit from a clear-cut, candid grantor-grantee policy as well because it invites them to set realistic expectations about what a relationship with your organization will look like.

Common Points to Include in a Grantor-Grantee Policy

When drafting grantor-grantee policies, it’s important that provisions included are directly related to your actual current and/or intended operations. (This is why it is important to have an attorney draft your policies as opposed to using something found off the internet—it probably won’t apply!) The following are some points you’ll want to consider as a part of a useful policy.

What basics should be included in the guidelines?

Consider details regarding:

  • How you want prospective grantees to approach your organization to submit an application or express interest. Is it by online application, email, letter, visit, etc.?
  • How quickly can prospective grantees expect a response to an initial inquiry or a submitted grant application? How will that contact be made?
  • What does the decision-making process look like? How often does the board meet, and when are decisions made?
  • You can also include here what you do NOT permit in terms of contact, meeting, or presentations by prospective grantees to avoid undue influence or even the appearance of unethical decision-making.
  • Are grants generally restricted, unrestricted, or on a case-by-case basis?

What is the timeline for funding?

  • Can applicants expect grants to be made on a rolling basis or are there specific deadlines?
  • What about the chance for grant renewals? When do those take place?

What are the types of proposals and information are you looking for?

Potential grantees will appreciate upfront information to decide whether to invest scarce resources and considerable time in an application for your organization. This invites a healthy amount of self-screening which enables you to evaluate the most appropriate applications. Consider these essential points:

  • Who is your ideal grantee? Do they need to operate in a certain location or within a specific realm of charitable purpose (such as, through work with animals, human services, or education)?
  • What are your preferred areas of funding? Some preferred funding areas can include: equipment; operating support; special programs/projects; financial stabilization; board/staff development; and capital projects. Will you accept proposals from outside your preferred areas or not at all?
  • What types of funding requests will you NEVER accept?
  • What qualifications and information will you consider in applications?
  • Do you want to give examples of previous grant applications you have funded? Do you want to list all grants made in the previous funding cycle in the policy or perhaps elsewhere (like on your website) or not at all?

What are the specifics of the grant application?

The grantor-grantee policy is not where your grant application should live, but important details about the application should be included. For instance:

  • What will you do to keep the application process reasonable? For instance, asking an applicant to make 10 copies for each individual board member may be unreasonable.
  • Where will the application be made available (online, in-person at the office, etc.) and in what formats (Word document; fillable PDF; etc.)?
  • How often will the grant application process and instructions be reviewed for inconsistencies and clarity? Once a year? Before any given application cycle?

What are the granting process logistics?

  • What is expected of grantees to confirm acceptance?
  • How will funds be distributed—at a specific check presentation event, through electronic transfer, or some other means?

hands in teamwork

How will the organization invite feedback?

Most grantees will not offer invaluable feedback unsolicited. Your organization may want to highlight how and when it will seek productive criticisms for continued growth.

You may not know an adjustment needs to be made until another organization tells you! How will you invite constructive feedback from current and prospective grantees regarding your funding application process? How will make certain it is seen as welcome and important?

What about an exit strategy?

Organizations evolve and priorities change. What does the process look like for informing grantees of a transition away from funding? Certainly, grantees should not expect support for forever, but they should expect respect and clarity when it comes to a grantor planning to pull support. Ample time and notification should be given, as well as the option for support in other ways (if applicable).

How about opportunities for collaboration?

In addition to or apart from funding, what are other ways you invite collaboration with past/current/future grantees? Beyond money, additional chances for working together can further strengthen community connections and enhance mutually beneficial partnerships.

Drafting Your Policies

I would be happy to discuss the particulars of your organization’s needs and goals to ensure your grantor-grantee policy is tailormade to best set your organization up for granting success. Contact me at any time via email (gordon@gordonfischerlawfirm.com) or by phone (515-371-6077).

man typing on macbook

I’ve written a lot about IRS Form 990 on this blog, but all nonprofits organized in Iowa or authorized to business in the state also need to file a Biennial Report with the office of the Iowa Secretary of State. The report is required under Iowa Code §504.1613.

The report is pretty basic and is essentially entity information updates of which the Iowa Secretary of State’s office records. Report requirements vary by state, so I’ve laid out all the basics below!

When is my nonprofit’s Biennial Report due?

Biennial Reports should be submitted between January 1 and April 1 in odd-numbered years (like this one, 2019!). An organization’s first Biennial Report is due on the first odd-numbered year following the calendar year of formation. So, if your nonprofit was formed (meaning you submitted articles of incorporation) in October 2019, the first Biennial Report would be due by April 1, 2021.

Does someone have to sign it? Does it need to be notarized?

Yes; someone with authority in the organization should sign it (such as the president of the board of directors), however, original signatures are not required. Notarization is also not required.

person at conference table

What information is included in the biennial report?

The statute requires the following information be reported. (Note that a nonprofit is still a “corporate” entity, even though we don’t typically refer to nonprofit organizations like corporations.):

  • Name of the corporation
  • State or country under whose law the nonprofit incorporated
  • Address of the corporation’s registered office
  • Name of the corporation’s registered agent at that office in Iowa
  • Consent of any new registered agent, if applicable
  • Address of the corporation’s principal office
  • Names and addresses of the president, secretary, treasurer, and one member of the board of directors
  • Whether or not the corporation has members

The information on the Biennial Report should be related to the two-year period immediately preceding the calendar year in which the report is filed.

Is there a form?

Yes, there is a form you can file online or by mail. You will need both the corporation number and a temporary code to begin the filing process. Each corporation’s registered agent will receive a Biennial Report notice in early January.

Does it cost money?

Unlike the costs for LLCs or for-profit corporations, for nonprofit corporations, the filing fee is $0.

Other Considerations

While you’re thinking about reporting, once you have the Biennial Report submitted turn your attention to Form 990. Do you know which version you can submit? Do you need to adopt any beneficial policies and procedures to boost your filing (and amplify good governance and successful operations in your organization)?

Don’t hesitate to contact me with questions about any forms and reporting. It can seem like a pain at first, but the more prepared you are and the more knowledge you have, the faster you can get back to work, forwarding your mission.

people brainstorming at table

If your nonprofit has an endowment, I recommend adopting and implementing an endowment policy handbook. The benefits of this handbook are numerous. For one, it can best prepare the nonprofit’s leaders to manage and put to use bequests of all sizes. Furthermore, a pre-established set of policies can help your organization avoid legal missteps and other conflicts.

Answer the Important Questions

Endowed funds bring special responsibilities: legal, financial, and ethical. There are many important questions which can only be resolved by:

  1. a full discussion and informed decisions by board members;
  2. the members adopting written and specific policies in clear, plain language; and
  3. putting those policies in a coherent, consistent, and accessible handbook.

In this way, all the many and varied responsibilities of endowed funds will be met. Once legal, financial, and ethical duties are met, the nonprofit can use the endowed fund to effectively grow the organization’s programs, support the mission, and aid the organization’s longitudinal viability.

Recommended Content for the Endowment Policy Handbook

Just like your employee handbook, the set of policies related to the organization’s endowment should be specific to your operations, intentions, and goals. There is no one-size-fits-all document, as what may make sense for a large nonprofit would not apply at all to a small one. (This is a good reason to not steal a template from the internet as it likely won’t serve its purpose and could potentially make things even more confusing.) In general, however, there are some recommended provisions that should be in all handbooks, like the following:

Definition of Terms

Basic terms, like the word “endowment” itself, need to be defined. The same goes for restricted versus unrestricted funds, donor intent (to contribute to the endowment rather than other funds), and others.

Types of Gifts

What types of gifts will be accepted for endowment contributions, and under what circumstances?

Donor Recognition for Endowments

Will there be a different or special procedure for donor recognition when a donor gives to the endowment?

Confidentiality

Confidentiality of private information of donors and potential donors to endowment must be maintained. What’s the specific process for doing so?

 Uniform Prudent Management of Institutional Funds Act

Rules which ensure the requirements of the law UPMIFA are fully meet, if not exceeded.

Accounting of Endowment Funds

How will financial standards be applied to endowment funds? Who specifically will ensure the appropriate and proper accounting of endowment funds?

Management of Endowment Funds

The management of endowment funds is to provide consistent sources of income for which programs or activities?

Investment of Endowment Funds

Is the investment of the endowment directed toward maximizing the return of principal while maintaining prudent fiscal guidelines? A basic question for both the management and investment of endowed funds is: what institution shall hold the funds?

Restrictions of/on Endowment Funds

Endowment funds can NOT be spent on certain categories or items. What are they?

Revision or Amendment

In the future, how can the endowment policies handbook be revised or amended, under what circumstances, and for what reasons?

It’s also a smart idea to include a copy of the Endowed Fund Gift Agreement you have donors sign when making a gift to the endowment.

Drafting Your Endowment Policy Handbook

I would be happy to discuss the particulars of your organization to ensure your endowment policy handbook is tailor-made to set the organization and its fundraising efforts up for success. Contact me with your questions and thoughts! One thing is for certain–you shouldn’t be managing an endowment fund without having a clear blueprint for how it should run.

agenda on table

Martin Luther King Jr. Day and Valentine’s Day aren’t the only days worth recognizing in January and February. I like to help spread the word about all the awesome events, awards, and grants available in Iowa. There are so many great opportunities for nonprofit pros, board members, volunteers, and donors, that range from seminars to galas. But, life is busy, and it can be hard to keep track of what you should register for or put on your calendar. That’s why I compiled a list for your convenience!

Learning Seminars, Trainings, & Workshops

  • 1/9/20; 1/23/20; 2/6/20; 2/20/20; 3/5/20 – Hosted by Volunteer Iowa: “The online Volunteer Management series will enhance best practices training and provide a consistent curriculum to be used within your organization. The webinar series is live, interactive, and the online classes are presented by leading experts across the state. Registration fee to attend all six sessions: $125.”
  • 1/15/20 – Head to Cedar Rapids for “Nonprofit Know-How: Grants at the Community Foundation in 2020.” A taco bar followed by a panel discussion to offer insights about the grantmaking process at the Greater Cedar Rapids Community Foundation. Panelists include a former grant committee member, a former grant writer, and Community Foundation Program Officers. The event will also include a review 2020 grant opportunities at the Community Foundation for local charitable nonprofits that provide services in Linn County.
  • 1/21/20- At the Des Moines Fundraising Institute’s “Capital Campaigns I” class, participants will develop a framework for building a successful campaign that includes planning, timelines, and resources. This session will explore feasibility studies, hiring outside counsel, and creating a case statement for the campaign.
  • 1/22/20- Nonprofit staff and volunteers who have social media and digital marketing duties or those who are interested in exploring social media may want to register for “How to Succeed in Social Media in 2020 and Beyond” at Junior Achievement in Des Moines.
  • 1/28/20- Nonprofit professionals (executive directors, program staff and others) that train adult learners may want to register for “Train the Trainer” session covering everything that goes into planning a successful training session. Attendees will receive all the slides, handouts and a Train the Trainers toolkit. Morning coffee, snacks and lunch will be provided.
  • 2/17/19- At the Des Moines Fundraising Institute’s “Capital Campaigns II” class, attendees will focus on the implementation of the plan including the private and public phases of the campaign, unrestricted and restricted giving (purpose and time), pledge payments, and complex gift vehicles including blended gifts.
  • 2/29/20 – “Equity by Design: Using Equity-Centered Community Design to Co-Create Community-Engaged Projects” workshop will be hosted at Grinnell College by Iowa Campus Connect. The workshop is open to faculty, staff, community members/organizations, and students interested in beginning to develop a framework for their own collaborative community projects.

Events

Grants/Scholarships

  • 1/24/20 – Iowa & Minnesota Campus Compact is seeking host sites for next year’s VISTA Community Corps program, which strives to eliminate poverty through community-campus partnerships by placing full-time capacity-building support in nonprofit organizations and higher education institutions. Deadline for applications is January 24.
  • 1/31/20- Applications are due at the end of January for the Bank of America Student Leaders Program, which connects community-minded high school juniors and seniors with paid summer internships with local nonprofits and a national leadership summit in Washington, D.C.
  • 1/31/20- Each year, dsmHack holds a 48-hour hackathon to help a local nonprofit organization solve their technology problems. This flagship event connects technology enthusiasts including developers, designers, and project managers and partners them with nonprofits selected through an application process. Nonprofit applications are open through January 31.
  • 2/28/20 – Prairie Meadows Community Betterment Grants fund small-to-medium-sized projects with grants ranging from $100 to $99,999. These grants support qualified organizations seeking to improve the lives of those in their communities. Submissions are due by February 28.

There are so many great events and opportunities for nonprofits and the people that advance them that there is no doubt I missed some in the list above. Don’t hesitate to email me at gordon@gordonfischerlawfirm.com to notify GFLF of any upcoming nonprofit-focused events and opportunities in the coming months.

sign here on phone

From online donations to individually-tailored policies and procedures there’s a lot for nonprofit professionals to stay on top of. One of the ways I like to serve my mission of promoting and maximizing charitable giving in Iowa is to help nonprofits leaders in the state understand the ever-changing regulatory landscape to be the most successful they can.

In December 2019 the Internal Revenue Service (IRS) announced that tax-exempt organizations are now required to electronically file certain documents. This comes after the passage of the Taxpayer First Act in July 2019, which affected tax-exempt organizations in tax years beginning after July 1, 2019. This is a change from the previous option where organizations had the option to mail in paper forms. Organizations that have previously filed paper forms should receive a notice from the IRS telling them of the change.

The following IRS forms should now be filed electronically:

Form 990, Return of Organization Exempt from Income Tax
• Form 990-PF, Return of Private Foundation (or Section 4947(a)(1) Trust Treated as Private Foundation)
• Form 8872, Political Organization Report of Contributions and Expenditures
• Form 1065, U.S. Return of Partnership Income (if filed by a Section 501(d) apostolic organization)

I’ve written about Form 990 in-depth before. While nonprofits don’t generally file annual tax returns (hence the tax-exempt status) most nonprofits need to file an important annual information return (a version of Form 990). If you want to learn more, I recommend giving these posts a read:

Interested in other aspects of successful nonprofit operations and great governance? Confused about any other regulatory changes? Don’t hesitate to contact me for a consult at gordon@gordonfischerlawfirm.com and 515-371-6077.

man with fireworks - charitable giving

With ringing in the new year comes the inevitable resolutions to be happier, healthier, more productive…all good intentions. But, what if this year you make a different kind of resolution—an actionable goal that could make a difference in the causes you care about? How about a goal that goes beyond yourself and could also have a positive impact on your community? This year I implore you to make at least one charitable giving goal. A giving goal can be a “resolution” you actually keep after the snow melts. How? With the right plan in place!

woman looking at fireworks

Similarly, I encourage my clients to determine their estate planning goals. These goals help guide me in drafting a personalized estate plan and determining which documents and provisions are needed. After all, every Iowan, family, and business is unique. Charitable giving goals can work the same way as a guiding blueprint for the who, what, when, and why of giving.

Use the following information to set your charitable giving goals for the new year!  

tips for setting charitable giving goals

Set a budget.

Of course, to begin, you’ll need to examine your entire budget including income, committed expenses (such as rent/mortgage payments, all bills, healthcare costs, etc.), to determine your discretionary income—this is the money you have left over after your committed expenses.

Along with your budget you should also consider whether larger one-time donations or recurring (perhaps monthly) donations work better for your budget, personality, and spending habits. A one-time donation may help prevent money from being spent on other discretionary choices. On the other hand, a repeated, monthly donation may help divide the total amount up into manageable sums. And, monthly donations can often be configured to automatically be made from your account which makes it easy to set the figure at the beginning of the year and make it a regular expenditure. Nonprofit organizations are grateful for all charitable contributions, but recurring, monthly gifts make their budgeting easier.

Look at the big picture.

big picture giving

Step back from the accounting weeds for a moment and sit down with a plain piece of paper. Write down the causes and organizations you care about. If you feel passionate about a certain issue, but don’t know of a specific charity off the top of your head that is addressing the issue, make a note of it. Your list doesn’t have to be long, just true to you.

Then, commit to research to determine which organizations are going to invest your money toward a mission that aligns with your own ethos. Some things to consider about a charity:

  • Financial health. Tax-exempt organizations have to file Form 990 (officially, the “Return of Organization Exempt From Income Tax”)  with the IRS. This form details the organization’s financial information and is available to the public. Do a search on a database such as the Foundation Center, for a charity you’re considering donating to, and review the financial data.
  • What’s the charity’s commitment to transparency? How about accountability?
  • What’s the organization’s Charity Navigator rating, if any? Charity Navigator’s rating system examines a charity’s performance in the areas of financial health and accountability/transparency, and presents it in an easily discernible way.
  • Is the organization a public charity or private foundation? This will have an impact on your federal income tax charitable deductions.
  • Is the organization based in the U.S. or is it a foreign charity? (Generally, if the donee is a foreign charitable organization, an income tax deduction is unavailable.)

Of course, if you’re personally involved with an organization through volunteering, fundraising, or the like, that’s a good way to “know” the charities as well. Research will empower and embolden your charitable goals if you know your donation is going to an upstanding, trustworthy operation.

Seek advice.

If you made a goal to increase muscle mass, you would likely seek the services of a personal trainer. If your goal is to eat healthier? Maybe a nutritionist. When the goal is to be committed to smart charitable donations, you’ll want to enlist the likes of your lawyer, accountant, and/or financial advisor. Seek out a professional who has experience working with nonprofits, the tax code, and strategies for intelligent giving. This pro can and should be able to help you put your plan into action.

(This tip also applies to practicing charitable giving through your estate plan—something you should definitely hire an estate planning lawyer to make sure the estate plan is properly, legally executed.)

Focus efforts / limit charitable targets.

Smart charitable giving means a vested commitment toward a cause or organization’s advancement, as well as financially beneficial tax deductions for you. Unlike investments where the general advice is to diversify to reduce risk, in the realm of charitable giving the opposite may well be true. You may well receive the greatest “return” by concentrating your giving on a fewer, rather than more, organizations. Consider giving to two or three nonprofits to magnify your impact.

If you’re ready to commit to charitable giving goals you can actually keep I’m happy to offer advice and strategy. Don’t hesitate to reach out via email (gordon@gordonfischerlawfirm.com) or by phone (515-371-6077).

We’re now well into the 25 Days of Giving Series and it’s my intent to provide different aspects and strategies of charitable giving. Given that it’s the season of joy, sharing, and love it’s a great time to be thinking about smart giving (the kind that doesn’t involve gift wrappings, stockings, or bows). Read on to learn how the charitable remainder trust could be a valuable giving tool. 

Charitable Remainder Trust, defined

A charitable remainder trust (CRT) is a split interest trust that pays out income to one or more non-charitable beneficiaries for life (or lives) or a term of years not to exceed twenty. The selected payout rate may not be less than 5%, and no more than 50%, of fair market value (FMV) of assets originally placed in trust. At the end of the trust term, the remaining trust assets (the remainder interest) is distributed to charity selected by the donor; the actuarial value of the charity’s remainder interest must be at least 10% at the time of the trust’s creation.

Benefits of a CRT

  1. Note that a useful attribute of a CRT is flexibility. Although Donor’s transfer of property to the trust is irrevocable, a CRT provides for Donor the right to change charitable beneficiaries.
  2. Note also the tax benefits of a CRT. Donor may receive a federal income tax charitable deduction for the value of the remainder interest in the year of the transfer, Donor may transfer assets without recognition of capital gain tax, and there is no estate tax on the property passing to Charity.

Two forms: CRAT and CRUT

CRTs take one of two forms: a charitable remainder annuity trust (CRAT) or a charitable remainder unitrust (CRUT). There are important differences:

A CRAT pays an annuity to the income beneficiary at a selected payout rate that is a percentage of the assets valued at the time of the trust creation. Additional contributions to the trust are not permitted.

A CRUT pays a percentage of the annual value of the trust assets, a unitrust amount, to the income beneficiary. Additional contributions to the trust are permitted.

Variations of CRUTs

Several variations of the CRUT are permitted under the Internal Revenue Code:

  1. A Net-Income CRUT (NICRUT) permits the trustee to distribute an annual payment that is the lesser of the specified percentage of value in that year, or the net income actually earned by the trust in that year.
  2. A NIMCRUT is a CRUT with a net-income limitation subject to a make-up provision. Like a NICRUT, the terms of a NIMCRUT direct the Trustee to pay the lesser of the specified percentage of the value of the trust assets in that year or the net income actually earned by the trust in that year. However, if the payout is less than the specified percentage is paid out in one or more years, the accumulated “income deficits” will be made up in a subsequent year from the excess income above what is the specified percentage of the value of the trust assets in that year.
  3. A Flip CRUT permits the trust to begin its existence as a NICRUT or NIMCRUT, then “flip” into a standard CRUT on the occurrence of a specific triggering event, as provided in the trust document. The flip option is attractive when Donor wishes to donate to the CRUT illiquid or hard-to-market assets, such as real estate or closely held stock.

 

butterfly on finger

​Knowing if the CRT is a best choice for your charitable giving can be difficult, so I advise speaking with your trusted professional advisors to evaluate your situation. This concept can be confusing, so don’t hesitate to reach out for more information and explore how a charitable remainder trust could be beneficial to you. Feel free to contact me at any time at Gordon@gordonfischerlawfirm.com or by phone at 515-371-6077.

woman holding ornament

Thanks for reading the 25 Days of Giving series. Each day through December 25, I’m covering different aspects of charitable giving for both donors and nonprofit leaders. Have a topic you want to be covered or questions you want to be answered regarding charitable giving? Contact me.

I’ve covered the term quid pro quo in a previous legal word-of-the-day blog post and much of that applies to understanding quid pro quo donations. In short, quid pro quo (now you know Latin!) translates to “something for something” and means an exchange of goods or services, where one transfer is contingent upon the other. In the case of nonprofit organizations, sometimes a good or service is offered in exchange for a donation. When the donor makes a charitable donation more than $75 and the nonprofit offers a good or service in exchange for said donation, the tax-exempt charity must provide a written statement to the donor disclosing the following:

  • Statement of the good(s) or service(s) received in exchange for the donation.
  • A fair market value (FMV) of the good(s) or service(s) received.
  • Information for the donor that only a portion of the total contribution (the portion that exceeds the FMV) is eligible for a federal income tax charitable contribution deduction.

What Nonprofits Need to Know

merry christmas event menu

As a nonprofit organization offering a quid pro quo donation situation, there’s a penalty for not making the required disclosure of contributions greater than $75. The penalty is $10 per contribution up to $5,000 per fundraising mailer or event. If your nonprofit fails to disclose, but can prove the failure was due to a reasonable cause, the penalty may be avoided.

Offering a good or service as an incentive for a donation can be a great way to spark donor interest, but you’ll definitely want to determine the FMV and have a reasonable method, applied in good faith, for doing so. This can be easier said than done for goods and services that are not generally or commercially available. If that’s the case it’s recommended to estimate the FMV off of similar/comparable products and services that are available. Let’s consider a couple examples:

Example 1. For a contribution of $20,000 a history museum allows a donor to hold a private event in a ballroom of the museum. The museum doesn’t typically rent out this room, so how can a FMV be determined if there’s no standard rate? Looking at other similarly sized and quality ballrooms in the surrounding, general area cost $3,000 a night to rent. So, even though the museum’s ballroom has unique artifacts, a good faith estimate of the FMV of the museum’s ballroom is $3,000. The donor would then have a charitable contribution deduction total of $17,000.

Example 2. Your charity offers a one-hour golf lesson with a golf pro at the local country club to anyone who donates $500 or more. Usually the golf pro can be hired for a one-hour lesson for $100. An estimate made in good faith of the lessons’s FMV is $100.

Example 3. What if the service offered is unique, but is typically free? A state park foundation fundraiser advertises that a donation of $200 or more entitles you a spot on one of four different guided nature hikes with a volunteer park ranger. Typically the foundation doesn’t offer guided hikes to the general public, but hiking in the state parks is otherwise free. So, the FMV made in good faith for the hike is $0 and the charitable contribution eligible for deductions would be the full amount.

The only time you wouldn’t need to disclose the quid pro quo donation is when the good(s) or service(s) are of insubstantial value. The IRS also says disclosure is not required when the donor makes a payment of $75 or less (per year) and the exchange is only membership benefits that equate to, “Any rights or privileges (other than the right to purchase tickets for college athletic events) that the taxpayer can exercise often during the membership period, such as free or discounted admissions or parking or preferred access to goods or services.” The contribution can also stay undisclosed if the good/service is, “Admission to events that are open only to members and the cost per person of which is within the limits for low-cost.”

Basics of What Donors Need to Know

woman in winter with scarf

As a donor, if you’re making a contribution to an organization and receive something in exchange, know that it’s almost like you’re paying for the good/service you receive, but then can deduct the rest of the contribution.

Let’s say you make a charitable contribution of $100 to a 501(c)(3) organization that helps mistreated farm animals. To celebrate their anniversary, the organization is offering donors that gift $80 or more a large coffee table book filled with stories, poems, and photographs of the animals the organization has helped over the years. The book’s fair market value is $30. This FMV is based on the price if you were to buy it outright from the organization’s online shop. In this situation you as a donor would need to receive a written disclosure detailing your contribution amount ($100), FMV of the good (the book) received ($30), and the portion that is considered a tax-deductible charitable contribution amount ($70).

Even though the tax-deductible charitable contribution amount is $70 (less than the $75 threshold), the total donation was $100, so the charity is still required to provide a written disclosure.

Whether you’re a donor or a nonprofit leader, I’m here to help promote and maximize charitable giving in Iowa. Questions about written disclosure compliance or FMV calculation? Don’t hesitate to contact me.

red ornaments Endow Iowa Tax Credit

 Thank you for reading the 25 Days of Giving series! In the spirit of the holiday season, I’m covering different aspects of charitable giving…perfect to get you thinking about your end-of-year giving.

There are many, many reasons Iowa is a great place to live and work. One reason is the Endow Iowa Tax Credit Program—a smart way to stretch your charitable dollars. Iowa community foundations provide exclusive access to the Endow Iowa Tax Credit program. Giving through the Endow Iowa program allows Iowa taxpayers to receive a 25% Iowa tax credit, in addition to the federal charitable income tax deduction, for qualifying charitable gifts.

The Endow Iowa Tax Credit Program provides unique opportunities to meet philanthropic goals while receiving maximum tax benefits. Highlights of this program include:

  • A variety of gifts qualify for Endow Iowa Tax Credits including cash, real estate, grain, appreciated securities, and outright gifts of retirement assets. In fact, appreciated assets, like stocks or real estate, can provide even better value because the donor may avoid capital gains taxes.
  • To be eligible, Endowed Tax Iowa Credit gifts must be placed in a permanent endowment fund of a qualifying organization. The endowment funds are intended to exist in perpetuity (continual), and the spend rate from the fund may not exceed 5% annually.
  • Tax credits of 25% of the gifted amount are limited to $300,000 in tax credits per individual for a gift of $1.2 million, or $600,000 in tax credits per couple for a gift of $2.4 million, assuming both are Iowa taxpayers.
  • Eligible gifts will qualify for credits on a first-come/first-serve basis until the yearly appropriated limit is reached. If the current available Endow Iowa Tax Credits have been awarded, qualified donors will be eligible for the next year’s Endow Iowa Tax Credits. Donors should be encouraged to act as early in the year as possible to ensure receipt of credits as soon as possible.
  • All qualified donors can carry forward the tax credit for up to five years after the year the donation was made.

It should also be noted that the Endow Iowa Tax Credits are capped. The Iowa Legislature sets aside a pool of money for Endow Iowa, and it’s available on a first-come, first-serve basis. Submitting an application at the beginning of the tax year is advised, as tax credits often run out toward year’s end. In fact, this year approximately $6 million in tax credits were awarded and there are no more available credits to be granted. However, you can submit your application to be placed on the waitlist for 2020 tax credits.

In exchange for 25% Iowa tax credit and the opportunity to have an even greater impact on their philanthropic interests in the state of Iowa, now and into the future, the Endow Iowa Tax Credit Program should be seriously considered by all. The impact is immense: in 2018, donors received tax credits for more than 3,434 separate donations to 76 different community foundations and affiliate organizations through Endow Iowa. And, since 2003, more than $263 million has been invested through the program to improve residents’ lives.

Any questions or thoughts on how the Endow Iowa Tax Credit Program could mean big benefits for your finances and your state? Don’t hesitate to contact me.