Guidelines On Contributions To Cover University Expenses & Unreimbursed Expenses Of Volunteers
From time to time, Trustees, alumni, parents, and other friends of the University offer to make a charitable gift in order to cover a particular University expense or offer to host events or incur other costs on behalf of the University and then seek a charitable gift acknowledgement from the University. The University appreciates the goodwill and contributions of both time and money of its supporters. These guidelines have been prepared to help avoid misunderstandings and assist staff members in the Office of University Development and Alumni Relations (“UDAR”) in complying with University policies and operating within the Federal tax rules and University policies that apply to these situations.
A University supporter bears both the responsibility for substantiating charitable contributions and the tax consequences if a charitable deduction is claimed but disallowed. The University has responsibility for providing a qualifying charitable gift acknowledgement when it concludes that a charitable contribution has been made, and UDAR staff should be sufficiently aware of the relevant rules in order to give the donor guidance about the circumstances in which the University will be prepared to provide this acknowledgement.1 A firm understanding of the rules can avoid confusion and misunderstandings.
In all cases, fundraisers should consult with the Office of Gift Administration (“OGA”) (and OGA may wish to consult with the Office of General Counsel) prior to communicating to any donor or prospect whether the University expects to provide a qualifying acknowledgement in a particular situation.2 Reimbursements should also comply with the University’s Expense Reimbursement Policy.
A. A Supporter’s Charitable Contribution to Cover a University Expense
Rule 1: To qualify for a charitable deduction, University expenses covered by a supporter’s contribution must be reasonable and necessary expenses that are being incurred in furtherance of the University’s charitable and educational purposes. As long as the University is satisfied that the expense is reasonable and necessary, it is not essential that the expense be one that the University was originally planning to incur.
- Example 1a: A Trustee suggests that the University give a book on social justice to each member of the incoming freshman class and offers to pay for it if the University gives the Trustee the bill. The University was not planning to provide this book to freshmen, but determines that distribution of the book will further the objective of orienting freshmen to University values and life within the University community. The University confirms that the Trustee has no financial or other personal stake in the sales or public stature of this book. The University believes the book’s distribution to freshmen advances its charitable and educational mission and accepts the Trustee’s proposal. The University develops a plan to integrate the book into freshman orientation. Analysis: This is permissible. The University is already working with the bookseller, so the University obtains a price quote from the bookseller, determines that the quote is reasonable (albeit outside the University’s original budget), obtains a written pledge (e.g., an email) from the Trustee committing to make a gift in a corresponding amount, and the University pays the bookseller through its normal procurement processes. After the Trustee has paid the pledge, the University provides the Trustee with a qualifying acknowledgement.
- Example 1b: The University plans to host an on-campus alumni engagement forum that concludes with a dinner. While the event is being planned, an active alum who plans to attend suggests that the dinner would provide more opportunity for alumni engagement and would be more effective as a fundraising event if the two-course menu is expanded to include dessert. The alum offers to make a payment to the University to cover the difference between what the University would have paid for the dinner and what the dinner will cost with the enhanced menu. The University agrees with the assessment of the alum that the enhanced menu will improve the effectiveness of the dinner as a fundraising event. Analysis: This is permissible. After obtaining a reasonable price quote for the menu enhancement, the University obtains a written pledge (e.g., an email) from the alum committing to make a cash gift to cover the price differential, pays the bill through its normal procurement processes, and provides the alum with a qualifying acknowledgement after the alum fulfills the terms of the pledge.
B. A Supporter’s Unreimbursed Expenses as Charitable Contribution
Rule 2: To qualify for a charitable deduction, an individual’s direct payment of expenses must be “directly connected with and solely attributable to” services that the individual is providing to the University (e.g., volunteer assistance with fundraising)3 and must primarily benefit the University rather than the donor.4
- Example 2a: Same as 1b, except that the alum has been asked to be the featured speaker at the dinner and, in response, has proposed to host the dinner at their private club, where club rules require that he make direct payment for the cost of the space rental and the food and beverage service. The alum has agreed to coordinate their remarks with University staff in order to ensure that their message is aligned with University messaging at the event and to work closely with the University on the guest list and the effort to encourage appropriate alumni to attend. The University determines that a dinner at the private club advances the University’s charitable mission, that the costs to be incurred are reasonable and necessary, and that the costs are “incident to the rendition of” (i.e., arise from) the volunteer services that benefit the University (i.e., a speech and other volunteer activities conducted by the alum in alignment with the University’s donor-cultivation objectives for the dinner). The University has final say over the guest list for the dinner. Analysis: While there may be non-tax issues with this fact scenario (e.g., the rental agreement and insurance for an off-site event), this is permissible from a tax deductibility standpoint. After the alum provides substantiation of the expenses paid, it is permissible for the University to provide a qualifying acknowledgement of the gift. Note: The acknowledgement must include a description of the services provided by the donor.5
- Example 2b: Same as 2a, except that the alum retains final say over the guest list and does not permit University staff to comment on their prepared remarks. The event coincides with the birthday of the spouse of the alum, and the alum directs the club to serve birthday cake as one of two dessert options. The University concludes that the alum and spouse are the primary beneficiaries of the event and that any services to the University are incidental to the personal benefits the alum is receiving from the payment of the costs of the space rental, food and beverages. Analysis: The University may not acknowledge the payment of these expenses by the alum as a charitable contribution. No qualifying acknowledgement should be provided.
Rule 3: Travel-related expenses incurred by a supporter in connection with volunteer fundraising assistance must be necessary and reasonable for the activity being conducted.6
- Example 3a: A Trustee knows of an important prospect in California and suggests that a senior fundraiser at the University fly to California with the Trustee so that Trustee can make the introduction. The University does research that confirms the value of devoting time and resources to this prospect and is of the view that the presence of the Trustee will be helpful to establish a connection with the prospect. The Trustee is willing to work with staff to develop a strategy for the meeting in California. Under University policy, economy travel in this circumstance is permissible. Finally, the timing of the travel confirms that there is no significant personal benefit7 of the trip to the senior fundraiser or the Trustee, such as vacation or tourism. The Trustee directly purchases air tickets for Trustee and the fundraiser and seeks a qualifying acknowledgement for the cost of the airline tickets. Analysis: This is permissible, provided the expenses are duly substantiated. Note: The acknowledgement must include a description of the services provided by the donor.
- Example 3b: Same as 3a, except that the Trustee pays for a private jet for the travel to and from California and then seeks acknowledgement of this expense as charitable contribution. Analysis: Absent extenuating circumstances, from a tax perspective this expense is likely not reasonable and necessary and the use of private jets are not allowed in these situations under NYU’s Travel and Expense Policy. No qualifying acknowledgement should be provided.
Rule 4: Payment of expenses by a donor is not permissible to the extent it constitutes a personal gift to a University employee that may not be accepted under the University’s Travel and Expense Policy and/or an applicable conflict of interest policy.
- Example 4: A Trustee has offered to pay for the registration, travel, and hotel costs for a senior fundraiser to attend an out-of-state conference that the fundraiser’s supervisor considers worthwhile. The Trustee offers to pay for an additional two nights at the conference hotel after the conference has ended, so that the fundraiser can also do some sightseeing. Analysis: Pursuant to the University’s Travel and Expense Policy and Conflict of Interest Policy, it is not permissible for the employee to accept the additional two nights of lodging. In addition, the Trustee is not providing any services in connection with the incurrence of these expenses. Accordingly, it is not permissible for the University to provide a qualifying acknowledgement for any of these unreimbursed expenses. It is preferable to encourage the Trustee to make a contribution to the University (as described in Part A) sufficient to cover the registration and reasonable and necessary travel and lodging costs for the fundraiser to attend the conference. It should be permissible for a qualifying acknowledgement to be provided for a contribution to the University that will cover such costs.
Rule 5: The payment of expenses by a supporter must not be allowed to short-circuit the University’s procurement process.
- Example 5: Same as 1b, except that the alum offers to pay the caterer after a University requisition for the caterer has already been created. Analysis: The University should pay the caterer and let the alum know the incremental amount attributable to the dessert course (as described in Part A), so that the alum may make a corresponding cash contribution to the University. It would be preferable to have obtained a written pledge (e.g., an email) before the requisition has been created. Following the approach described in Part A also avoids the likely conclusion that the alum is ineligible to deduct unreimbursed expenses, since the expenses do not arise from the rendition of services by the alum.
1 If a donor of a gift of $250 or more lacks a qualifying acknowledgement from the University, the donor’s deduction is subject to automatic disallowance by the IRS. A qualifying acknowledgement must be in writing and must be “contemporaneous” with the gift. In the case of cash, the writing must state the amount of cash paid, a statement of whether or not the University provides any goods or services in consideration in whole or in part for the cash, and if so, a statement of the estimated value of those goods or services. An acknowledgement is “contemporaneous” only if it is provided on or before the earlier of the date the donor files the original return for the taxable year in which the contribution was made or the due date (including extensions) for filing the taxpayer’s original return for that year.
2 Two important caveats on scope: First, the University does not provide tax advice to donors, and all communications with Trustees, alumni and other supporters about proposed forms of support to the University should include a statement to the effect that they should obtain tax advice from a tax professional. Second, the rules that are described below apply only to expenses covered by charitable gifts from individuals and unreimbursed expenses paid by individuals. Expenses covered or paid by private foundations or other organizations are beyond the scope of these Guidelines
3 Although an individual may not take a charitable deduction for a contribution of services, the applicable regulation states “unreimbursed expenditures made incident to the rendition of services to an organization… may constitute a deductible contribution”. An example of an expenditure “made incident to the rendition of services” would be out-of-pocket transportation expenses reasonably and necessarily incurred in performing donated services (e.g., traveling to another city with a development staffer for the purpose of making an introduction to a prospective donor) or a reasonable out-of-pocket expense necessarily incurred by a faculty member in order to provide an educational experience for the students in faculty member’s class (e.g., in a class about film history, paying the costs for students to attend an off-campus special screening of a newly restored Alfred Hitchcock film that features in the approved curriculum for the class). Previously, a tax court has determined that the taxpayer had provided services to a charitable organization that trapped and cared for feral cats by assessing “the strength of the taxpayer’s affiliation with the organization, the organization’s ability to initiate or request services from the taxpayer, the organization’s supervision over the taxpayer’s work, and the taxpayer’s accountability to the organization.”
4 Previously a court found that the skating lessons and travel expenses of a young figure skater and her mother were primarily to attain fame and success and the benefits to several skating-related charitable organizations were merely incidental. (“[T]he presence of a substantial, direct, personal benefit to the taxpayer or to someone other than the charity is fatal to the claim for a charitable contribution.”).
7 A court has found that the principal beneficiaries of taxpayer’s son’s trip abroad with a church group, although partially charitable in nature, were the taxpayer and her son, since the evidence showed the expedition was primarily a vacation, sightseeing, and cultural trip.