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Counting as gift

  • 1.  Counting as gift

    Posted 03-08-2019 12:22 PM
    Hello All, Looking to see if anyone has had experience with this. We have a company that would like to give a "loan" to students in particular program. The stipulation is that the "loan" will be forgiven if after graduation the student works for the company for so many years. My initial thought is that we would not record this as a gift. Has anyone had this instance before? If you did end up counting it as a gift, how were you able to justify? One small note at one point they were counting this as a gift, this was a number of years prior. Any help would be greatly appreciated. Thanks! Jessica Jessica Gebhart Director of Prospect Research & Advancement Services, University Advancement jgebhart@csusm.edu | 760-750-4401 | csusm.edu


  • 2.  Re: Counting as gift

    Posted 03-08-2019 03:19 PM
    In this particular case the way it had been done previously, was that the student signed the agreement with financial aid. That the 'loan' was processed through the University. The part I am unsure of is who made the determination to forgive the amount. I know the student had waiver's they had to sign stating they understood the agreement, but I think that was through financial aid as well, not the donor.


  • 3.  Re: Counting as gift

    Posted 03-08-2019 03:34 PM
    Well, that should never have been done as noted/suggested earlier. Such agreements must be between the student and the lender. But right now there seem to be a lot of unanswered questions and no paperwork (that you have). Please gather all of that and talk to the CFO and Counsel to get out of this (seeming) mess. The donor must make an irrevocable gift to the institution. Any arrangements to repay the donor must be between the student and the donor. However, if a donor wishes to add funds to a UNIVERSITY student loan fund - that, too, must be an irrevocable gift with the donor not being otherwise involved after they make the gift. The loan, then, becomes a financial transaction between the business office and the student with no Advancement involvement. John John H. Taylor Principal, John H. Taylor Consulting 2604 Sevier St. Durham, NC 27705 johntaylorconsulting@gmail.com 919.816.5903 (cell/text) Serving the Advancement Community Since 1987 On Fri, Mar 8, 2019 at 4:19 PM Jessica Gebhart <jgebhart@csusm.edu> wrote: > In this particular case the way it had been done previously, was that the > student signed the agreement with financial aid. That the 'loan' was > processed through the University. The part I am unsure of is who made the > determination to forgive the amount. I know the student had waiver's they > had to sign stating they understood the agreement, but I think that was > through financial aid as well, not the donor. >


  • 4.  Re: Counting as gift

    Posted 03-08-2019 04:20 PM
    I agree that I think a benefit is being earned by the donor in this case. But the student does have the option not to work for them and choose to pay back the monies at the time of graduation. The problem as I see it, is that they want us to take on the responsibility of the collection of funds from the student. Which, from what everyone has been saying would not be considered a gift. I will reach out to our CFO and see what his take is on this, but I think it is pretty clear that the responsibility for the monies needs to be an agreement between the student and the employer not the University. Thank you everyone for your help.


  • 5.  Re: Counting as gift

    Posted 03-08-2019 05:53 PM
    Hi Jessica, We've had similar agreements here. What's important to keep in mind is that you may be dealing with two separate agreements. One between the university and the donor, and another between the award recipient and the donor. As long as all the money to the university is irrevocable and condition-free, you may be able to count it as a gift if it's going to award recipients being selected appropriately. The conditions placed on the award recipients (such that they'd have to work for the company after graduation) is between them and the donor. But this language of a "loan" and any conditions placed on the university such that under certain circumstances you'd have to return funds would likely disqualify it a as gift and shouldn't be in your gift agreement, in my opinion. In your gift agreement with the donor, I may want to consider that it explicitly state in the criteria for the award recipients that they execute this external agreement separately and exclusively between themselves and the donor and that the university is not a party to that agreement. Additionally, I would suggest that the language of the agreement state that these funds to the university are unconditional and irrevocable. The "return of funds" to the donor should be a stipulation only addressed in the separate agreement between the award recipient and the donor. Without knowing more about your donor's intent it's difficult to suggest anything further. Lastly, you'll definitely want your counsel to review both the GA and the external agreement to ensure that they a separate and do not contain elements of donor control over the gift that would disqualify it per CASE/CAE. Just my 2c, Eric Eric F. Valdescaro AVP, Advancement Services University of Hawaii Foundation
    Original Message


  • 6.  Re: Counting as gift

    Posted 03-08-2019 06:00 PM
    Wouldn't it be problematic that the "donor" has control over who would even be eligible to have the "loan" forgiven? It seems like you wouldn't be able to have the school give the money out independently. So the company could claim a donation on the loan amount, and then simply refuse to hire anyone who received it, and get it back, possibly with interest? Doesn’t seem to make much sense to me. Furthermore, a wouldn't a 'forgiven' loan be a taxable income event for the recipient? This seems too messy to be legal, but I'm often wrong, and it may not be the non-profit's problem anyway. -Matt Matthew Mills Student Worker Advancement Gift and Information Services Tufts University
    Original Message


  • 7.  Re: Counting as gift

    Posted 03-08-2019 07:28 PM
    Hi Matt, In the scenario I mentioned, the student is agreeing to the terms and conditions of the tuition assistance directly with and exclusively with the donor. Once they do, they have now (in theory) satisfied a primary criterion of qualifying for the assistance. So the student would understand and accept that if they don't execute the terms, they would be subject to having to give money to the donor in an amount equivalent to what they received in tuition assistance from the university. So the donor doesn't have control over who would be eligible because they can't control which students decide to opt in or not. The company could claim a donation on the loan amount if it were was irrevocably and unconditionally given to the university. A bigger question in my estimation, would be the need for a provision in the gift agreement of how the university could expend the funds should there not be enough students who agree to the terms of the separate agreement. If the GA stated that, in such a case, the university would have to return unspent funds, then that would make the overall gift conditionally revocable and a measure of donor control that would (in my estimation) disqualify it as a gift per CASE/CAE. However, any funds that were spent from the donation would still legally be a charitable gift by the donor as far as I can tell. Again, this is all predicated on the scenario I mentioned which I don't know for sure applies in Jessica's case. -Eric Eric F. Valdescaro AVP, Advancement Services University of Hawaii Foundation
    Original Message


  • 8.  Re: Counting as gift

    Posted 03-08-2019 08:43 PM
    Like Matt, I have never been able to get my mind around how these arrangements might qualify as charitable contributions. If the donor company wants to provide money to students on the condition that the student goes on to work for the company, great. They get the benefit of hiring the student after graduation. Recruitment is a valuable consideration for an employer, and all the more so if the conditions of the arrangement select a particularly qualified student/employee. (How that might affect financial aid is another matter and beyond my expertise.) But how does that benefit the mission of the school? The school receives money from the employer unconditionally (or it is not a gift). The school then grants the money to a student but with the condition that the student execute a separate agreement to work for the employer? Scholarship donors are free to provide general criteria for scholarship recipients, sufficiently broad to allow the discretion of the school to award the scholarships in furtherance of their charitable mission. There can even be requirements that the recipient do something in the future, like maintain a certain GPA or study a certain subject. But none of those requirements return a valuable benefit to the donor. It seems to me that, once the recipient is required to do something that benefits the donor, that’s an entirely different scenario. It is worth considering that the deductibility of a charitable contribution is affected not only by benefits provided to the donor by the recipient but by benefits provided to the donor by anyone. One of the examples in Revenue Ruling 67-246 involves a benefit provided by a third party. It seem to me that in this arrangement, the school is undertaking only to provide the funds to a student who agrees to work for the company. So the company is getting a valuable consideration. That the student separately contracts with the company doesn’t fundamentally change that, does it? You have the same conditionality: the employer only gives the money if the school agrees only to award it to a student who agrees to work for the company or return the funds to the company. The company makes a gift and gets the valuable consideration of the recruitment of a student (or, in effect, a refund of their “unconditional” gift, in the form or repayment). Again, the fact that the benefit is provided by a third party is irrelevant. The donor is getting both a charitable contribution and a valuable consideration. In fact, one might argue that the employer is getting the additional valuable consideration of having the school do the work of identifying the candidates. And, again, how does it support the mission of the institution to require a student as a condition of receiving funds that the student undertakes to provide service to some other party (and an interested party in the funding of the “charitable” contribution at that). And doesn’t calling it a “loan” just makes it worse, doesn’t it. The employer makes an unconditional gift to the school with the requirement that the school “loans” the money to a student under conditions that the employer either gets the service of the student or their money back? If the employer wants to loan money to the student under those terms, fine, as long as it works under financial aid regulations. The student can agree, or not. But how does that benefit the school? I think that if I were overseeing gift processing in such an environment, I would want to get written authorization from counsel before even considering such an arrangement, in very clear and specific language that addresses whether the donor is receiving a benefit and whether the arrangement is consistent with financial aid regulations. My US$0.02 worth; the usual disclaimers apply. Good luck! Alan Alan S. Hejnal Data Quality Manager Smithsonian Institution - Office of Advancement 600 Maryland Avenue SW, Suite 600E P.O. Box 37012, MRC 527 Washington, DC 20013-7012 •: 202-633-8754 | •: HejnalA@si.edu<mailto:HejnalA@si.edu> [SNAGHTML5cbfa34]<https://www.si.edu/> [AASP_FundSvcs_LOGO-01(040pct)(mark)] From: Advancement Services Discussion List <FUNDSVCS@LISTSERV.FUNDSVCS.ORG> On Behalf Of Eric Valdescaro Sent: Friday, March 8, 2019 3:28 PM To: FUNDSVCS@LISTSERV.FUNDSVCS.ORG Subject: Re: [FUNDSVCS] Counting as gift Hi Matt, In the scenario I mentioned, the student is agreeing to the terms and conditions of the tuition assistance directly with and exclusively with the donor. Once they do, they have now (in theory) satisfied a primary criterion of qualifying for the assistance. So the student would understand and accept that if they don't execute the terms, they would be subject to having to give money to the donor in an amount equivalent to what they received in tuition assistance from the university. So the donor doesn't have control over who would be eligible because they can't control which students decide to opt in or not. The company could claim a donation on the loan amount if it were was irrevocably and unconditionally given to the university. A bigger question in my estimation, would be the need for a provision in the gift agreement of how the university could expend the funds should there not be enough students who agree to the terms of the separate agreement. If the GA stated that, in such a case, the university would have to return unspent funds, then that would make the overall gift conditionally revocable and a measure of donor control that would (in my estimation) disqualify it as a gift per CASE/CAE. However, any funds that were spent from the donation would still legally be a charitable gift by the donor as far as I can tell. Again, this is all predicated on the scenario I mentioned which I don't know for sure applies in Jessica's case. -Eric Eric F. Valdescaro AVP, Advancement Services University of Hawaii Foundation
    Original Message


  • 9.  Re: Counting as gift

    Posted 03-08-2019 08:58 PM
    Alan, In your determination is the student signing the agreement to work for the corporate benefactor before or after they are selected as an award recipient? I think that is the key distinction here. In my scenario, the student must agree to the terms (e.g., work for the company, and pay the sum of the tuition benefit if they don’t) BEFORE they enter the pool of “qualified students.” They are of course free NOT to sign, but the signing of the agreement with the company is not discriminatory. As long as the pool of money donated to the university by the company is irrevocable to the university to fulfill the mission of tuition assistance to students, it is mission related. The agreement signed by interested students beforehand to make them eligible for the funds shouldn’t disqualify these “loan” funds as a charitable gift if there are no conditions imposed on the university by which they would need to return the funds to the company and they are truly irrevocable. I agreed that the “loan” language word choice is poor and should be avoided. Additionally, I don’t personally advocate for these types of GAs and think they’re a bit icky, but from what I can see, they don’t violate IRS regs or CASE guidelines if implemented as stated. Eric From: Advancement Services Discussion List [mailto:FUNDSVCS@LISTSERV.FUNDSVCS.ORG] On Behalf Of Hejnal, Alan Sent: Friday, March 8, 2019 11:43 AM To: FUNDSVCS@LISTSERV.FUNDSVCS.ORG Subject: Re: [FUNDSVCS] Counting as gift Like Matt, I have never been able to get my mind around how these arrangements might qualify as charitable contributions. If the donor company wants to provide money to students on the condition that the student goes on to work for the company, great. They get the benefit of hiring the student after graduation. Recruitment is a valuable consideration for an employer, and all the more so if the conditions of the arrangement select a particularly qualified student/employee. (How that might affect financial aid is another matter and beyond my expertise.) But how does that benefit the mission of the school? The school receives money from the employer unconditionally (or it is not a gift). The school then grants the money to a student but with the condition that the student execute a separate agreement to work for the employer? Scholarship donors are free to provide general criteria for scholarship recipients, sufficiently broad to allow the discretion of the school to award the scholarships in furtherance of their charitable mission. There can even be requirements that the recipient do something in the future, like maintain a certain GPA or study a certain subject. But none of those requirements return a valuable benefit to the donor. It seems to me that, once the recipient is required to do something that benefits the donor, that’s an entirely different scenario. It is worth considering that the deductibility of a charitable contribution is affected not only by benefits provided to the donor by the recipient but by benefits provided to the donor by anyone. One of the examples in Revenue Ruling 67-246 involves a benefit provided by a third party. It seem to me that in this arrangement, the school is undertaking only to provide the funds to a student who agrees to work for the company. So the company is getting a valuable consideration. That the student separately contracts with the company doesn’t fundamentally change that, does it? You have the same conditionality: the employer only gives the money if the school agrees only to award it to a student who agrees to work for the company or return the funds to the company. The company makes a gift and gets the valuable consideration of the recruitment of a student (or, in effect, a refund of their “unconditional” gift, in the form or repayment). Again, the fact that the benefit is provided by a third party is irrelevant. The donor is getting both a charitable contribution and a valuable consideration. In fact, one might argue that the employer is getting the additional valuable consideration of having the school do the work of identifying the candidates. And, again, how does it support the mission of the institution to require a student as a condition of receiving funds that the student undertakes to provide service to some other party (and an interested party in the funding of the “charitable” contribution at that). And doesn’t calling it a “loan” just makes it worse, doesn’t it. The employer makes an unconditional gift to the school with the requirement that the school “loans” the money to a student under conditions that the employer either gets the service of the student or their money back? If the employer wants to loan money to the student under those terms, fine, as long as it works under financial aid regulations. The student can agree, or not. But how does that benefit the school? I think that if I were overseeing gift processing in such an environment, I would want to get written authorization from counsel before even considering such an arrangement, in very clear and specific language that addresses whether the donor is receiving a benefit and whether the arrangement is consistent with financial aid regulations. My US$0.02 worth; the usual disclaimers apply. Good luck! Alan Alan S. Hejnal Data Quality Manager Smithsonian Institution - Office of Advancement 600 Maryland Avenue SW, Suite 600E P.O. Box 37012, MRC 527 Washington, DC 20013-7012 •: 202-633-8754 | •: HejnalA@si.edu<mailto:HejnalA@si.edu> [SNAGHTML5cbfa34]<https://www.si.edu/> [AASP_FundSvcs_LOGO-01(040pct)(mark)] From: Advancement Services Discussion List <FUNDSVCS@LISTSERV.FUNDSVCS.ORG<mailto:FUNDSVCS@LISTSERV.FUNDSVCS.ORG>> On Behalf Of Eric Valdescaro Sent: Friday, March 8, 2019 3:28 PM To: FUNDSVCS@LISTSERV.FUNDSVCS.ORG<mailto:FUNDSVCS@LISTSERV.FUNDSVCS.ORG> Subject: Re: [FUNDSVCS] Counting as gift Hi Matt, In the scenario I mentioned, the student is agreeing to the terms and conditions of the tuition assistance directly with and exclusively with the donor. Once they do, they have now (in theory) satisfied a primary criterion of qualifying for the assistance. So the student would understand and accept that if they don't execute the terms, they would be subject to having to give money to the donor in an amount equivalent to what they received in tuition assistance from the university. So the donor doesn't have control over who would be eligible because they can't control which students decide to opt in or not. The company could claim a donation on the loan amount if it were was irrevocably and unconditionally given to the university. A bigger question in my estimation, would be the need for a provision in the gift agreement of how the university could expend the funds should there not be enough students who agree to the terms of the separate agreement. If the GA stated that, in such a case, the university would have to return unspent funds, then that would make the overall gift conditionally revocable and a measure of donor control that would (in my estimation) disqualify it as a gift per CASE/CAE. However, any funds that were spent from the donation would still legally be a charitable gift by the donor as far as I can tell. Again, this is all predicated on the scenario I mentioned which I don't know for sure applies in Jessica's case. -Eric Eric F. Valdescaro AVP, Advancement Services University of Hawaii Foundation
    Original Message


  • 10.  Re: Counting as gift

    Posted 03-08-2019 09:01 PM
    Sorry, forgot to include…I’ll see if I can discuss Ruling 67-246 with our In-House Counsel and get his take. -Eric From: Advancement Services Discussion List [mailto:FUNDSVCS@LISTSERV.FUNDSVCS.ORG] On Behalf Of Eric Valdescaro Sent: Friday, March 8, 2019 11:58 AM To: FUNDSVCS@LISTSERV.FUNDSVCS.ORG Subject: Re: [FUNDSVCS] Counting as gift Alan, In your determination is the student signing the agreement to work for the corporate benefactor before or after they are selected as an award recipient? I think that is the key distinction here. In my scenario, the student must agree to the terms (e.g., work for the company, and pay the sum of the tuition benefit if they don’t) BEFORE they enter the pool of “qualified students.” They are of course free NOT to sign, but the signing of the agreement with the company is not discriminatory. As long as the pool of money donated to the university by the company is irrevocable to the university to fulfill the mission of tuition assistance to students, it is mission related. The agreement signed by interested students beforehand to make them eligible for the funds shouldn’t disqualify these “loan” funds as a charitable gift if there are no conditions imposed on the university by which they would need to return the funds to the company and they are truly irrevocable. I agreed that the “loan” language word choice is poor and should be avoided. Additionally, I don’t personally advocate for these types of GAs and think they’re a bit icky, but from what I can see, they don’t violate IRS regs or CASE guidelines if implemented as stated. Eric From: Advancement Services Discussion List [mailto:FUNDSVCS@LISTSERV.FUNDSVCS.ORG] On Behalf Of Hejnal, Alan Sent: Friday, March 8, 2019 11:43 AM To: FUNDSVCS@LISTSERV.FUNDSVCS.ORG<mailto:FUNDSVCS@LISTSERV.FUNDSVCS.ORG> Subject: Re: [FUNDSVCS] Counting as gift Like Matt, I have never been able to get my mind around how these arrangements might qualify as charitable contributions. If the donor company wants to provide money to students on the condition that the student goes on to work for the company, great. They get the benefit of hiring the student after graduation. Recruitment is a valuable consideration for an employer, and all the more so if the conditions of the arrangement select a particularly qualified student/employee. (How that might affect financial aid is another matter and beyond my expertise.) But how does that benefit the mission of the school? The school receives money from the employer unconditionally (or it is not a gift). The school then grants the money to a student but with the condition that the student execute a separate agreement to work for the employer? Scholarship donors are free to provide general criteria for scholarship recipients, sufficiently broad to allow the discretion of the school to award the scholarships in furtherance of their charitable mission. There can even be requirements that the recipient do something in the future, like maintain a certain GPA or study a certain subject. But none of those requirements return a valuable benefit to the donor. It seems to me that, once the recipient is required to do something that benefits the donor, that’s an entirely different scenario. It is worth considering that the deductibility of a charitable contribution is affected not only by benefits provided to the donor by the recipient but by benefits provided to the donor by anyone. One of the examples in Revenue Ruling 67-246 involves a benefit provided by a third party. It seem to me that in this arrangement, the school is undertaking only to provide the funds to a student who agrees to work for the company. So the company is getting a valuable consideration. That the student separately contracts with the company doesn’t fundamentally change that, does it? You have the same conditionality: the employer only gives the money if the school agrees only to award it to a student who agrees to work for the company or return the funds to the company. The company makes a gift and gets the valuable consideration of the recruitment of a student (or, in effect, a refund of their “unconditional” gift, in the form or repayment). Again, the fact that the benefit is provided by a third party is irrelevant. The donor is getting both a charitable contribution and a valuable consideration. In fact, one might argue that the employer is getting the additional valuable consideration of having the school do the work of identifying the candidates. And, again, how does it support the mission of the institution to require a student as a condition of receiving funds that the student undertakes to provide service to some other party (and an interested party in the funding of the “charitable” contribution at that). And doesn’t calling it a “loan” just makes it worse, doesn’t it. The employer makes an unconditional gift to the school with the requirement that the school “loans” the money to a student under conditions that the employer either gets the service of the student or their money back? If the employer wants to loan money to the student under those terms, fine, as long as it works under financial aid regulations. The student can agree, or not. But how does that benefit the school? I think that if I were overseeing gift processing in such an environment, I would want to get written authorization from counsel before even considering such an arrangement, in very clear and specific language that addresses whether the donor is receiving a benefit and whether the arrangement is consistent with financial aid regulations. My US$0.02 worth; the usual disclaimers apply. Good luck! Alan Alan S. Hejnal Data Quality Manager Smithsonian Institution - Office of Advancement 600 Maryland Avenue SW, Suite 600E P.O. Box 37012, MRC 527 Washington, DC 20013-7012 •: 202-633-8754 | •: HejnalA@si.edu<mailto:HejnalA@si.edu> [SNAGHTML5cbfa34]<https://www.si.edu/> [AASP_FundSvcs_LOGO-01(040pct)(mark)] From: Advancement Services Discussion List <FUNDSVCS@LISTSERV.FUNDSVCS.ORG<mailto:FUNDSVCS@LISTSERV.FUNDSVCS.ORG>> On Behalf Of Eric Valdescaro Sent: Friday, March 8, 2019 3:28 PM To: FUNDSVCS@LISTSERV.FUNDSVCS.ORG<mailto:FUNDSVCS@LISTSERV.FUNDSVCS.ORG> Subject: Re: [FUNDSVCS] Counting as gift Hi Matt, In the scenario I mentioned, the student is agreeing to the terms and conditions of the tuition assistance directly with and exclusively with the donor. Once they do, they have now (in theory) satisfied a primary criterion of qualifying for the assistance. So the student would understand and accept that if they don't execute the terms, they would be subject to having to give money to the donor in an amount equivalent to what they received in tuition assistance from the university. So the donor doesn't have control over who would be eligible because they can't control which students decide to opt in or not. The company could claim a donation on the loan amount if it were was irrevocably and unconditionally given to the university. A bigger question in my estimation, would be the need for a provision in the gift agreement of how the university could expend the funds should there not be enough students who agree to the terms of the separate agreement. If the GA stated that, in such a case, the university would have to return unspent funds, then that would make the overall gift conditionally revocable and a measure of donor control that would (in my estimation) disqualify it as a gift per CASE/CAE. However, any funds that were spent from the donation would still legally be a charitable gift by the donor as far as I can tell. Again, this is all predicated on the scenario I mentioned which I don't know for sure applies in Jessica's case. -Eric Eric F. Valdescaro AVP, Advancement Services University of Hawaii Foundation
    Original Message


  • 11.  Re: Counting as gift

    Posted 03-08-2019 09:03 PM
    Before, after, the company is still getting a valuable benefit in consideration of their “gift”. My US$0.02 worth; the usual disclaimers apply. Good luck! Alan Alan S. Hejnal Data Quality Manager Smithsonian Institution - Office of Advancement 600 Maryland Avenue SW, Suite 600E P.O. Box 37012, MRC 527 Washington, DC 20013-7012 •: 202-633-8754 | •: HejnalA@si.edu<mailto:HejnalA@si.edu> [SNAGHTML5cbfa34]<https://www.si.edu/> [AASP_FundSvcs_LOGO-01(040pct)(mark)] From: Advancement Services Discussion List <FUNDSVCS@LISTSERV.FUNDSVCS.ORG> On Behalf Of Eric Valdescaro Sent: Friday, March 8, 2019 4:58 PM To: FUNDSVCS@LISTSERV.FUNDSVCS.ORG Subject: Re: [FUNDSVCS] Counting as gift Alan, In your determination is the student signing the agreement to work for the corporate benefactor before or after they are selected as an award recipient? I think that is the key distinction here. In my scenario, the student must agree to the terms (e.g., work for the company, and pay the sum of the tuition benefit if they don’t) BEFORE they enter the pool of “qualified students.” They are of course free NOT to sign, but the signing of the agreement with the company is not discriminatory. As long as the pool of money donated to the university by the company is irrevocable to the university to fulfill the mission of tuition assistance to students, it is mission related. The agreement signed by interested students beforehand to make them eligible for the funds shouldn’t disqualify these “loan” funds as a charitable gift if there are no conditions imposed on the university by which they would need to return the funds to the company and they are truly irrevocable. I agreed that the “loan” language word choice is poor and should be avoided. Additionally, I don’t personally advocate for these types of GAs and think they’re a bit icky, but from what I can see, they don’t violate IRS regs or CASE guidelines if implemented as stated. Eric From: Advancement Services Discussion List [mailto:FUNDSVCS@LISTSERV.FUNDSVCS.ORG] On Behalf Of Hejnal, Alan Sent: Friday, March 8, 2019 11:43 AM To: FUNDSVCS@LISTSERV.FUNDSVCS.ORG<mailto:FUNDSVCS@LISTSERV.FUNDSVCS.ORG> Subject: Re: [FUNDSVCS] Counting as gift Like Matt, I have never been able to get my mind around how these arrangements might qualify as charitable contributions. If the donor company wants to provide money to students on the condition that the student goes on to work for the company, great. They get the benefit of hiring the student after graduation. Recruitment is a valuable consideration for an employer, and all the more so if the conditions of the arrangement select a particularly qualified student/employee. (How that might affect financial aid is another matter and beyond my expertise.) But how does that benefit the mission of the school? The school receives money from the employer unconditionally (or it is not a gift). The school then grants the money to a student but with the condition that the student execute a separate agreement to work for the employer? Scholarship donors are free to provide general criteria for scholarship recipients, sufficiently broad to allow the discretion of the school to award the scholarships in furtherance of their charitable mission. There can even be requirements that the recipient do something in the future, like maintain a certain GPA or study a certain subject. But none of those requirements return a valuable benefit to the donor. It seems to me that, once the recipient is required to do something that benefits the donor, that’s an entirely different scenario. It is worth considering that the deductibility of a charitable contribution is affected not only by benefits provided to the donor by the recipient but by benefits provided to the donor by anyone. One of the examples in Revenue Ruling 67-246 involves a benefit provided by a third party. It seem to me that in this arrangement, the school is undertaking only to provide the funds to a student who agrees to work for the company. So the company is getting a valuable consideration. That the student separately contracts with the company doesn’t fundamentally change that, does it? You have the same conditionality: the employer only gives the money if the school agrees only to award it to a student who agrees to work for the company or return the funds to the company. The company makes a gift and gets the valuable consideration of the recruitment of a student (or, in effect, a refund of their “unconditional” gift, in the form or repayment). Again, the fact that the benefit is provided by a third party is irrelevant. The donor is getting both a charitable contribution and a valuable consideration. In fact, one might argue that the employer is getting the additional valuable consideration of having the school do the work of identifying the candidates. And, again, how does it support the mission of the institution to require a student as a condition of receiving funds that the student undertakes to provide service to some other party (and an interested party in the funding of the “charitable” contribution at that). And doesn’t calling it a “loan” just makes it worse, doesn’t it. The employer makes an unconditional gift to the school with the requirement that the school “loans” the money to a student under conditions that the employer either gets the service of the student or their money back? If the employer wants to loan money to the student under those terms, fine, as long as it works under financial aid regulations. The student can agree, or not. But how does that benefit the school? I think that if I were overseeing gift processing in such an environment, I would want to get written authorization from counsel before even considering such an arrangement, in very clear and specific language that addresses whether the donor is receiving a benefit and whether the arrangement is consistent with financial aid regulations. My US$0.02 worth; the usual disclaimers apply. Good luck! Alan Alan S. Hejnal Data Quality Manager Smithsonian Institution - Office of Advancement 600 Maryland Avenue SW, Suite 600E P.O. Box 37012, MRC 527 Washington, DC 20013-7012 •: 202-633-8754 | •: HejnalA@si.edu<mailto:HejnalA@si.edu> [SNAGHTML5cbfa34]<https://www.si.edu/> [AASP_FundSvcs_LOGO-01(040pct)(mark)] From: Advancement Services Discussion List <FUNDSVCS@LISTSERV.FUNDSVCS.ORG<mailto:FUNDSVCS@LISTSERV.FUNDSVCS.ORG>> On Behalf Of Eric Valdescaro Sent: Friday, March 8, 2019 3:28 PM To: FUNDSVCS@LISTSERV.FUNDSVCS.ORG<mailto:FUNDSVCS@LISTSERV.FUNDSVCS.ORG> Subject: Re: [FUNDSVCS] Counting as gift Hi Matt, In the scenario I mentioned, the student is agreeing to the terms and conditions of the tuition assistance directly with and exclusively with the donor. Once they do, they have now (in theory) satisfied a primary criterion of qualifying for the assistance. So the student would understand and accept that if they don't execute the terms, they would be subject to having to give money to the donor in an amount equivalent to what they received in tuition assistance from the university. So the donor doesn't have control over who would be eligible because they can't control which students decide to opt in or not. The company could claim a donation on the loan amount if it were was irrevocably and unconditionally given to the university. A bigger question in my estimation, would be the need for a provision in the gift agreement of how the university could expend the funds should there not be enough students who agree to the terms of the separate agreement. If the GA stated that, in such a case, the university would have to return unspent funds, then that would make the overall gift conditionally revocable and a measure of donor control that would (in my estimation) disqualify it as a gift per CASE/CAE. However, any funds that were spent from the donation would still legally be a charitable gift by the donor as far as I can tell. Again, this is all predicated on the scenario I mentioned which I don't know for sure applies in Jessica's case. -Eric Eric F. Valdescaro AVP, Advancement Services University of Hawaii Foundation
    Original Message


  • 12.  Re: Counting as gift

    Posted 03-08-2019 09:11 PM
    The transaction is without charitable intent. It is with the expectation of future services. Bob Swanson, CPA Controller Bowling Green State University 1851 N. Research Drive Bowling Green, Ohio 43403 rswanso@bgsu.edu<mailto:rswanso@bgsu.edu> w 419.372.8597 From: Advancement Services Discussion List <FUNDSVCS@LISTSERV.FUNDSVCS.ORG> On Behalf Of Eric Valdescaro Sent: Friday, March 8, 2019 5:01 PM To: FUNDSVCS@LISTSERV.FUNDSVCS.ORG Subject: [EXTERNAL] Re: [FUNDSVCS] Counting as gift Sorry, forgot to include…I’ll see if I can discuss Ruling 67-246 with our In-House Counsel and get his take. -Eric From: Advancement Services Discussion List [mailto:FUNDSVCS@LISTSERV.FUNDSVCS.ORG] On Behalf Of Eric Valdescaro Sent: Friday, March 8, 2019 11:58 AM To: FUNDSVCS@LISTSERV.FUNDSVCS.ORG<mailto:FUNDSVCS@LISTSERV.FUNDSVCS.ORG> Subject: Re: [FUNDSVCS] Counting as gift Alan, In your determination is the student signing the agreement to work for the corporate benefactor before or after they are selected as an award recipient? I think that is the key distinction here. In my scenario, the student must agree to the terms (e.g., work for the company, and pay the sum of the tuition benefit if they don’t) BEFORE they enter the pool of “qualified students.” They are of course free NOT to sign, but the signing of the agreement with the company is not discriminatory. As long as the pool of money donated to the university by the company is irrevocable to the university to fulfill the mission of tuition assistance to students, it is mission related. The agreement signed by interested students beforehand to make them eligible for the funds shouldn’t disqualify these “loan” funds as a charitable gift if there are no conditions imposed on the university by which they would need to return the funds to the company and they are truly irrevocable. I agreed that the “loan” language word choice is poor and should be avoided. Additionally, I don’t personally advocate for these types of GAs and think they’re a bit icky, but from what I can see, they don’t violate IRS regs or CASE guidelines if implemented as stated. Eric From: Advancement Services Discussion List [mailto:FUNDSVCS@LISTSERV.FUNDSVCS.ORG] On Behalf Of Hejnal, Alan Sent: Friday, March 8, 2019 11:43 AM To: FUNDSVCS@LISTSERV.FUNDSVCS.ORG<mailto:FUNDSVCS@LISTSERV.FUNDSVCS.ORG> Subject: Re: [FUNDSVCS] Counting as gift Like Matt, I have never been able to get my mind around how these arrangements might qualify as charitable contributions. If the donor company wants to provide money to students on the condition that the student goes on to work for the company, great. They get the benefit of hiring the student after graduation. Recruitment is a valuable consideration for an employer, and all the more so if the conditions of the arrangement select a particularly qualified student/employee. (How that might affect financial aid is another matter and beyond my expertise.) But how does that benefit the mission of the school? The school receives money from the employer unconditionally (or it is not a gift). The school then grants the money to a student but with the condition that the student execute a separate agreement to work for the employer? Scholarship donors are free to provide general criteria for scholarship recipients, sufficiently broad to allow the discretion of the school to award the scholarships in furtherance of their charitable mission. There can even be requirements that the recipient do something in the future, like maintain a certain GPA or study a certain subject. But none of those requirements return a valuable benefit to the donor. It seems to me that, once the recipient is required to do something that benefits the donor, that’s an entirely different scenario. It is worth considering that the deductibility of a charitable contribution is affected not only by benefits provided to the donor by the recipient but by benefits provided to the donor by anyone. One of the examples in Revenue Ruling 67-246 involves a benefit provided by a third party. It seem to me that in this arrangement, the school is undertaking only to provide the funds to a student who agrees to work for the company. So the company is getting a valuable consideration. That the student separately contracts with the company doesn’t fundamentally change that, does it? You have the same conditionality: the employer only gives the money if the school agrees only to award it to a student who agrees to work for the company or return the funds to the company. The company makes a gift and gets the valuable consideration of the recruitment of a student (or, in effect, a refund of their “unconditional” gift, in the form or repayment). Again, the fact that the benefit is provided by a third party is irrelevant. The donor is getting both a charitable contribution and a valuable consideration. In fact, one might argue that the employer is getting the additional valuable consideration of having the school do the work of identifying the candidates. And, again, how does it support the mission of the institution to require a student as a condition of receiving funds that the student undertakes to provide service to some other party (and an interested party in the funding of the “charitable” contribution at that). And doesn’t calling it a “loan” just makes it worse, doesn’t it. The employer makes an unconditional gift to the school with the requirement that the school “loans” the money to a student under conditions that the employer either gets the service of the student or their money back? If the employer wants to loan money to the student under those terms, fine, as long as it works under financial aid regulations. The student can agree, or not. But how does that benefit the school? I think that if I were overseeing gift processing in such an environment, I would want to get written authorization from counsel before even considering such an arrangement, in very clear and specific language that addresses whether the donor is receiving a benefit and whether the arrangement is consistent with financial aid regulations. My US$0.02 worth; the usual disclaimers apply. Good luck! Alan Alan S. Hejnal Data Quality Manager Smithsonian Institution - Office of Advancement 600 Maryland Avenue SW, Suite 600E P.O. Box 37012, MRC 527 Washington, DC 20013-7012 •: 202-633-8754 | •: HejnalA@si.edu<mailto:HejnalA@si.edu> [SNAGHTML5cbfa34]<https://www.si.edu/> [AASP_FundSvcs_LOGO-01(040pct)(mark)] From: Advancement Services Discussion List <FUNDSVCS@LISTSERV.FUNDSVCS.ORG<mailto:FUNDSVCS@LISTSERV.FUNDSVCS.ORG>> On Behalf Of Eric Valdescaro Sent: Friday, March 8, 2019 3:28 PM To: FUNDSVCS@LISTSERV.FUNDSVCS.ORG<mailto:FUNDSVCS@LISTSERV.FUNDSVCS.ORG> Subject: Re: [FUNDSVCS] Counting as gift Hi Matt, In the scenario I mentioned, the student is agreeing to the terms and conditions of the tuition assistance directly with and exclusively with the donor. Once they do, they have now (in theory) satisfied a primary criterion of qualifying for the assistance. So the student would understand and accept that if they don't execute the terms, they would be subject to having to give money to the donor in an amount equivalent to what they received in tuition assistance from the university. So the donor doesn't have control over who would be eligible because they can't control which students decide to opt in or not. The company could claim a donation on the loan amount if it were was irrevocably and unconditionally given to the university. A bigger question in my estimation, would be the need for a provision in the gift agreement of how the university could expend the funds should there not be enough students who agree to the terms of the separate agreement. If the GA stated that, in such a case, the university would have to return unspent funds, then that would make the overall gift conditionally revocable and a measure of donor control that would (in my estimation) disqualify it as a gift per CASE/CAE. However, any funds that were spent from the donation would still legally be a charitable gift by the donor as far as I can tell. Again, this is all predicated on the scenario I mentioned which I don't know for sure applies in Jessica's case. -Eric Eric F. Valdescaro AVP, Advancement Services University of Hawaii Foundation
    Original Message


  • 13.  Re: Counting as gift

    Posted 03-08-2019 09:48 PM
    The interpretation that these “services” are a guaranteed “benefit” is presumptive. Employment is not indentured servitude and these individuals are to be paid. If anyone believes that all workers are an undeniable benefit to their employer, I have some slackers I can introduce them to. However, I was NOT originally aware of this new stipulation below that the student has the option to repay it back monetarily. THAT TO ME, is a deal breaker. Because that essentially guarantees that the donor gets either good performance or money which would be an undeniable benefit. -Eric
    Original Message


  • 14.  Re: Counting as gift

    Posted 03-08-2019 10:11 PM
    Presumably, the then-employees will be paid for their work. The valuable consideration is the identification of candidates and obtaining their agreement to work for the company. That’s a big deal. Companies spend real money to do that. Essentially, what you have here is free recruitment services and a signing bonus to the identified employee—except the company gets to deduct it as a charitable contribution. Bob Swanson identified the heat if the matter. There is no charitable intent here. And, as counsel at a previous institution explained it to me, for all our appropriate avoidance of providing tax advice, by providing a gift receipt we are considered to be providing advice that the donor has made a charitable contribution and that the donor has not—to the best of our knowledge—received anything of substantial value in return. And if the donor relies on that advice and claims a deduction that the IRS determines is not valid, we can be subject to the same penalties as a tax preparer who provides bad tax advice. I would be hard-pressed to say that the donor hasn’t received anything if value out of this arrangement. My US$0.02 worth; the usual disclaimers apply. Alan Sent from my mobile device; please excuse the inevitable typing/autocorrect infelicities. > On Mar 8, 2019, at 5:48 PM, Eric Valdescaro <Eric.Valdescaro@uhfoundation.org> wrote: > > The interpretation that these “services” are a guaranteed “benefit” is presumptive. Employment is not indentured servitude and these individuals are to be paid. If anyone believes that all workers are an undeniable benefit to their employer, I have some slackers I can introduce them to. > > However, I was NOT originally aware of this new stipulation below that the student has the option to repay it back monetarily. THAT TO ME, is a deal breaker. Because that essentially guarantees that the donor gets either good performance or money which would be an undeniable benefit. > > -Eric > >
    Original Message


  • 15.  Re: Counting as gift

    Posted 03-09-2019 12:03 AM
    I see your point Alan, and personally to large extent I agree. Please don't forget that. But from a practical sense, I'm often reminded to be concerned with applying law or industry guidelines, and I don't currently believe there are any which are cut and dry applications here. This may be a matter well-suited for a PLR. Now, absent the monetary repayment option, would I still personally defend such a fundraising arrangement? No. But pragmatically speaking, if development approached me with this, it would be challenging to defend rejecting the agreement solely on the grounds you state. Our "similar" agreements never dealt with work or repayment back to the donor (fortunately). They dealt with graduates agreeing to work in Hawaii for a few years post-graduation. But I've been trying to look at this from a development perspective as well since their backstop for compliance is usually IRS or CASE, unless our counsel convinces them otherwise. A bit lower than my personal ethical threshold for these matters. As for Rev. Rul 67-246, I addressed it internally, and was told that it does not address the question of whether scholarship recipients can be required to work for the donor such that it would be either a private benefit or some benefit that would limit the donor's tax deduction, and neither can it be reasonably extended to address it as it deals with fundraiser events, not scholarship assistance. This is not to say that there isn't perhaps another Rev. Rul. out there that better addresses this situation. Nonetheless, these issues are arcane to say the least. If Jessica has access to counsel, I'd be very interested to hear their perspective. -Eric
    Original Message


  • 16.  Re: Counting as gift

    Posted 03-09-2019 10:12 AM
    I am chiming in a bit late here, but . . . We had precisely this issue reviewed to a significant extent when I was at NC State. Our Counsel ruled that the construct, as proposed by the donor, represented an exchange transaction and was not permissible as a tax-deductible gift. We were prohibited from issuing a receipt in such a case. In fact, until we restructured the program, Counsel did not want NC State Advancement to be involved in the transaction at all. The University would simply deposit funds directly into a student account as a private payment from the funder to the individual - possibly resulting in taxable income. BUT . . . We reconstructed the entire program to the satisfaction of Counsel and the funders (there were several wanting to do this sort of thing). We termed the program "Graduates in Training," or GIT. I think I have discussed this protocol on FundSvcs in the past. Essentially, and as has been proposed in this discussion, scholarship funding was provided by the corporate donor to be awarded by the University in accordance with standard fellowship award protocol. Within the award letter, there was a reference to the potential of the funder to offer the award recipient a GIT opportunity subsequent and external to the actual award - with the award NOT being contingent on whether a private agreement between the two ever occurred. Any further engagement between the student and the funder was entirely outside University control or involvement. Whether or not the student received the award had nothing to do with whether the student and the corporation ever engaged with each other. John John H. Taylor Principal, John H. Taylor Consulting 2604 Sevier St. Durham, NC 27705 johntaylorconsulting@gmail.com 919.816.5903 (cell/text) Serving the Advancement Community Since 1987 On Sat, Mar 9, 2019 at 10:30 AM Hejnal, Alan < 00000031f8bb5829-dmarc-request@listserv.fundsvcs.org> wrote: > It’s precisely the issue that the other agreements don’t provide benefits > back to the donor that makes this different, I would argue. > > > > But if your counsel authorizes you to provide a tax document that attests > that the donor is not receiving anything of value n consideration of their > gift, I guess that’s what you do! > > > > My US$0.02 worth; the usual disclaimers apply. > > > > Good luck! > > > > *Alan* > > > > *Alan S. Hejnal * > > Data Quality Manager > > Smithsonian Institution - Office of Advancement > > 600 Maryland Avenue SW, Suite 600E > > P.O. Box 37012, MRC 527 > > Washington, DC 20013-7012 > > (: 202-633-8754 | *: HejnalA@si.edu > > > [image: SNAGHTML5cbfa34] <https://www.si.edu/> > [image: AASP_FundSvcs_LOGO-01(040pct)(mark)] > > > > > > *From:* Advancement Services Discussion List < > FUNDSVCS@LISTSERV.FUNDSVCS.ORG> *On Behalf Of *Eric Valdescaro > *Sent:* Friday, March 8, 2019 8:03 PM > *To:* FUNDSVCS@LISTSERV.FUNDSVCS.ORG > *Subject:* Re: [FUNDSVCS] Counting as gift > > > > I see your point Alan, and personally to large extent I agree. Please > don't forget that. But from a practical sense, I'm often reminded to be > concerned with applying law or industry guidelines, and I don't currently > believe there are any which are cut and dry applications here. This may be > a matter well-suited for a PLR. > > > > Now, absent the monetary repayment option, would I still personally defend > such a fundraising arrangement? No. But pragmatically speaking, if > development approached me with this, it would be challenging to defend > rejecting the agreement solely on the grounds you state. > > > > Our "similar" agreements never dealt with work or repayment back to the > donor (fortunately). They dealt with graduates agreeing to work in Hawaii > for a few years post-graduation. But I've been trying to look at this from > a development perspective as well since their backstop for compliance is > usually IRS or CASE, unless our counsel convinces them otherwise. A bit > lower than my personal ethical threshold for these matters. > > > > As for Rev. Rul 67-246, I addressed it internally, and was told that it > does not address the question of whether scholarship recipients can be > required to work for the donor such that it would be either a private > benefit or some benefit that would limit the donor's tax deduction, and > neither can it be reasonably extended to address it as it deals with > fundraiser events, not scholarship assistance. > > > > This is not to say that there isn't perhaps another Rev. Rul. out there > that better addresses this situation. Nonetheless, these issues are arcane > to say the least. If Jessica has access to counsel, I'd be very interested > to hear their perspective. > > > > -Eric > > > > > >
    Original Message


  • 17.  Re: Counting as gift

    Posted 03-09-2019 02:30 PM
    It’s precisely the issue that the other agreements don’t provide benefits back to the donor that makes this different, I would argue. But if your counsel authorizes you to provide a tax document that attests that the donor is not receiving anything of value n consideration of their gift, I guess that’s what you do! My US$0.02 worth; the usual disclaimers apply. Good luck! Alan Alan S. Hejnal Data Quality Manager Smithsonian Institution - Office of Advancement 600 Maryland Avenue SW, Suite 600E P.O. Box 37012, MRC 527 Washington, DC 20013-7012 •: 202-633-8754 | •: HejnalA@si.edu<mailto:HejnalA@si.edu> [SNAGHTML5cbfa34]<https://www.si.edu/> [AASP_FundSvcs_LOGO-01(040pct)(mark)] From: Advancement Services Discussion List <FUNDSVCS@LISTSERV.FUNDSVCS.ORG> On Behalf Of Eric Valdescaro Sent: Friday, March 8, 2019 8:03 PM To: FUNDSVCS@LISTSERV.FUNDSVCS.ORG Subject: Re: [FUNDSVCS] Counting as gift I see your point Alan, and personally to large extent I agree. Please don't forget that. But from a practical sense, I'm often reminded to be concerned with applying law or industry guidelines, and I don't currently believe there are any which are cut and dry applications here. This may be a matter well-suited for a PLR. Now, absent the monetary repayment option, would I still personally defend such a fundraising arrangement? No. But pragmatically speaking, if development approached me with this, it would be challenging to defend rejecting the agreement solely on the grounds you state. Our "similar" agreements never dealt with work or repayment back to the donor (fortunately). They dealt with graduates agreeing to work in Hawaii for a few years post-graduation. But I've been trying to look at this from a development perspective as well since their backstop for compliance is usually IRS or CASE, unless our counsel convinces them otherwise. A bit lower than my personal ethical threshold for these matters. As for Rev. Rul 67-246, I addressed it internally, and was told that it does not address the question of whether scholarship recipients can be required to work for the donor such that it would be either a private benefit or some benefit that would limit the donor's tax deduction, and neither can it be reasonably extended to address it as it deals with fundraiser events, not scholarship assistance. This is not to say that there isn't perhaps another Rev. Rul. out there that better addresses this situation. Nonetheless, these issues are arcane to say the least. If Jessica has access to counsel, I'd be very interested to hear their perspective. -Eric
    Original Message