The Memorial Fund and the Quid Pro Quo
Northside Stage, a community theatre with a $310,000 annual fund and 22% donor retention, is approached by the Alvarez family. They want to establish a $5,000 memorial scholarship for the teen conservatory. They also want 10 gala tickets (Nov 18), a full-page program ad (deadline Nov 1), and public anonymity. Their employer matches gifts up to $5,000 but requires submission by Dec 31. Finance says scholarship funds cannot cover payroll or general operations. The family's previous largest gift was $1,200. Gala tickets have a $150 fair market value each; a full-page ad is valued at $600. The family asks whether the tickets and ad reduce their deduction, whether they can remain anonymous on the ad, and whether the full $5,000 can be matched. The development director has no gift acceptance policy for named funds.
1. Explain the quid pro quo issue and calculate what portion of the $5,000 is deductible if the family accepts the tickets and the ad.
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When a donor receives goods or services in exchange for a payment, the transaction is partly a purchase and partly a gift. The deductible amount is the payment minus the fair market value of the benefits received. Here, 10 gala tickets at $150 each equal $1,500. A full-page display ad valued at $600 is also a benefit. Total benefits are $2,100. If the family pays $5,000 and accepts both, the charitable gift portion is $2,900, not $5,000.
The organization must provide a written disclosure because the benefits exceed $75, and it should state the value of the goods or services provided. The family cannot deduct the $2,100 as a gift. If they want a $5,000 scholarship fund and still want the benefits, the total payment would need to be $7,100: $5,000 for the restricted fund plus $2,100 for the benefits. If the ad contains only the donor's name or logo as an acknowledgment, it may have no ad value; a full-page promotional ad does. Do not issue a receipt that calls the entire $5,000 a gift.
2. How should the named scholarship be structured given the finance restriction and the absence of a gift acceptance policy?
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Separate the charitable gift from the benefits before creating the fund. Establish a written gift agreement that names the fund, states its purpose, defines allowable expenses, and sets a reporting schedule. Because finance prohibits payroll and general operations, the agreement should restrict spending to direct teen-conservatory costs such as tuition assistance, supplies, transportation, and teaching-artist fees tied to the program. It should also say what happens if the program ends or the fund cannot be spent as intended.
Adopt a minimum named-fund threshold and a term, even if temporary, so the organization is not stuck administering a small restricted fund indefinitely. Clarify that the scholarship fund receives only the charitable portion, $2,900 if the family accepts the tickets and ad, unless they add $2,100 to preserve a $5,000 fund. The family should approve the fund description and the anonymity language in writing. If they want public anonymity, the organization can list the fund as anonymous, but it still needs the family's legal name and address for substantiation and matching.
3. What should the development office tell the family about anonymity and the employer match before Dec 31?
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Public anonymity and substantiation are different things. The family can be listed as anonymous in the program and on donor lists, but the charity must collect their name, address, and payment details to issue the acknowledgment and process the match. Tell them the organization will not publish their name without permission, but it cannot submit an anonymous matching form without identifying them to the employer.
For the match, confirm the employer's rules before promising anything. Many employers match only the charitable gift portion, not the value of tickets or advertising, and some exclude gifts where the donor received benefits. If the deductible gift is $2,900, submit $2,900, not $5,000, unless the employer explicitly allows the full payment. The gift must be completed or paid by Dec 31 if the match deadline is Dec 31; a pledge may not qualify. Give the family a written summary of the gift portion, the benefit value, and the match amount so they can decide before the Nov 1 ad deadline.