As we move past Thanksgiving and “Giving Tuesday” and move into the Christmas and year-end giving season, it might be an interesting time to consider your institution’s Gift Acceptance Policy and the procedures surrounding the acceptance of donor gifts.
Many of you have been hearing about the sudden collapse and bankruptcy proceedings of FTX. This seemingly robust cryptocurrency exchange sought to be very philanthropic – in their terms “altruistic.” FTX gave heavily to many future-looking projects and to political parties – to the tune of billions of dollars.
One question that arises with regard to the FTX collapse is whether the bankruptcy court might seek to have some or all of the FTX contributions to charities and/or political parties returned. This process – sometimes referred to as “clawbacks” – could be devastating to recipients. This would be especially difficult for those who have spent the funds.
So, first question: Does your institution have a “Gift Acceptance Policy” in place? And, right behind that question: If so, do you follow it?
If your institution does not have a policy of this nature, you should. Please contact us about more information and policy templates that may assist you and your Team in the process.
Back to FTX and possible “clawbacks.” This post is for information purposes. We are not attorneys and are not offering legal advice.
Clawbacks generally happen when debtors file claims/complaints with the bankruptcy court. These complaints most often take the form of 1) preference demands or, 2) fraudulent conveyance claims.
With a preference demand, there would be a request for the return of payments made within 90 days before the bankruptcy. If actual fraud is involved, there is the potential for a 2-year clawback period.
Back in 1998, Congress enacted the Religious Freedom and Charitable Donation Protection Act that is designed to protect churches and other charities from having to turn over charitable contributions to a bankruptcy trustee. A key to this legislation is the following provision, which is an amendment to section 548(a)(2) of the bankruptcy code:
A transfer of a charitable contribution to a qualified religious or charitable entity or organization shall not be considered to be a transfer [subject to recovery by a bankruptcy trustee] in any case in which—(A) the amount of that contribution does not exceed 15 percent of the gross annual income of the debtor for the year in which the transfer of the contribution is made; or (B) the contribution made by a debtor exceeded the percentage amount of gross annual income specified in subparagraph (A), if the transfer was consistent with the practices of the debtor in making charitable contributions.
Historically, clawbacks of donations to charities are pretty rare. However, in a 2014 church case (McGough, 737 F.3d 1268 (10th Cir. 2014)), required a church to return donations from a bankrupt couple that gave over 15% of their annual income to the church. The question arose with respect to the amount of the contributions that the church was required to return to the bankruptcy court. On appeal, the question arose as to whether the church would be required to return all of the “over 15%” contributions or only the amount that exceeded 15% in a given year.
In McGough, a federal appeals court concluded that contributions in excess of 15 percent of annual income are entirely recoverable by the bankruptcy trustee. This includes the first 15% of the contributions made by the bankrupt donor.
TO REVIEW…
Does your school have a “Gift Acceptance Policy” in place that is followed by Management and the Board?
Have you considered the potential ramifications of accepting “digital assets” – including cryptocurrency donations?
Please consider the potential issues that may arise from accepting donations of “unstable” assets or from struggling donors/entities.
Be sure you and your Team are knowledgeable about the “ins-and-outs” of non-cash or “alternative” asset donations.
Written byDavid C. Moja, CPA www.mojacompany.comThe information provided herein presents general information and should not be relied on as accounting, tax, or legal advice when analyzing and resolving a specific tax issue. If you have specific questions regarding a particular fact situation, please consult with competent accounting, tax, and/or legal counsel about the facts and laws that apply.
Comments