Publications & Reports

Contract Accord 11: Gifts

Accord Revision Date: August 2019
Page Updated: January 2020
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OVERVIEW & BACKGROUND

Gifts and donations to Universities and other academic institutions can take many forms but are often in the form of a money or tangible property. Per the Internal Revenue Service (IRS), “A gift to a charitable organization is a transfer of money or property without receipt of adequate consideration, made with charitable intent.”[1]

Though Gifts to support buildings and infrastructure are common, for the purposes of this Contract Accord, Gifts are defined as something of value provided by an industry donor (Company) to a university donee (University) with no or few conditions on use, with no expectation of direct benefit to the Company, and with little accounting to the Company by the University for use of the Gift beyond stewardship. The essence of a Gift is the donative intent of the Company. The terms the Company places on the Gift are indicative of the donative intent.

Various things are donated to Universities as Gifts, but financial support is often donated with instructions to be used for certain general purposes, such as for University research, student support, endowed faculty chair positions, continuing medical education programs, and designated funds to support initiatives for entrepreneurship or innovation.

Companies are able to deduct Gifts to tax-exempt organizations, including most Universities, under IRS regulations, but must report information about non-cash Gifts when the total amount is more than $500. The amount of the cash or non-cash Gift deduction must be reduced by the value of anything the University provides the Company in return for the Gift, such as football tickets, parking passes, or access to libraries.[2] A further limitation imposed by the IRS is that the Gift must be made to the University (as a qualified organization) and cannot be set aside for use by a specific person.

Universities make distinctions for accounting and other purposes between the kinds of funds they receive. Gifts are generally considered discretionary funds; although, the University will honor a Company’s stipulation that the Gift be used for a broadly stated purpose or within a certain unit of the University provided that the Gift meets the following criteria:

  • is not conditioned on the University adhering to specific terms and conditions or conducting a defined statement of work;
  • does not require previews of research to be published;
  • does not require specific accounting of the use of the Gift;
  • does not require the provision of intellectual property rights to the Company;
  • is transferred to the University without establishing a vendor or contractor relationship;
  • is given irrevocably, and the Company is not able to recapture any unspent portion or return of the Gift;
  • does not create an obligation by the University to permit use of University resources or facilities by the Company; and
  • does not create an obligation by the University to provide access to materials, equipment, other tangible items, or the data derived from research conducted using the Gift.

The Company may request that the University enter into a Gift agreement if the Company specifies that the Gift be used to further research in a particular field, by a specific researcher, in a specific lab, or for a particular general purpose in which the University is already engaged or expects to be engaged. The Company should be careful to make sure that the Gift agreement complies with IRS regulations if it expects the Gift to be tax deductible. If the Gift agreement requires that the Gift revert to the Company if the University fails to meet the conditions of use, the Gift may not be tax deductible.[3] The Gift may be conditioned on the University holding it in a separate account and providing the Company with an annual expenditure report.

If the Company expects to receive a commercial benefit or has any material expectations in return for providing the Gift, Universities generally would define this as something other than a Gift. Different Universities may have different views on the factors that differentiate a Gift from something else. One key point in the University administration of Gifts is the need for related administrative offices to define a joint procedure that provides adequate screening and categorization of Gifts so they can be accounted for properly. This may include screening and oversight of the Gift use for conflicts of interest (COI) and other laws and regulations, such as use of humans or animals. (For more information on COI, see UIDP Contract Accord 15: Personal Conflicts of Interest and UIDP Principled Partnerships Quick Guide.) A Gift, even if given to a captive foundation or an affiliated or independent philanthropic or research foundation of the University rather than directly to University, may still in some instances need to be accounted for, in whole or in part, through the University’s office of sponsored projects. If a Gift is so handled, accounting for it through the office of sponsored projects does not, in and of itself, require that the University classify the Gift as a grant. Many Universities report Gifts through their development offices at the time the Gift or commitment to provide the Gift is received. At the same time, sponsored projects financial accounting offices may report expenditure of the Gift funds under various classifications, such as research or instruction as the Gift is used.

INDUSTRY PERSPECTIVE

Companies should work closely with the University when they consider offering a Gift or proposing a research grant. The Company should consider the specificity needed to define what the funds are to be used for. If the Company is comfortable with a general description of the research area without a defined statement of work, deliverables, or budget, a Gift may be appropriate.

The best course is for Company researchers to describe to the University researchers what they want done with the support and what, if anything, they expect in return. They can then work with their respective administrative offices to determine how to classify the transaction and what paperwork is needed to go forward. (For additional information on the roles and responsibilities of company and university personnel, see UIDP Comparing Internal Structures Guide.)

Company researchers should be aware that some professors may encourage a Company to fund or otherwise support research as a Gift, because that may provide the professor more freedom in using the funds. It is important to talk with the appropriate offices at the University that handle Gifts and grants to ensure they agree with the professor’s assessment of how the funds should be spent. When the Company has been advised by University faculty or staff members of the University’s affiliated or independent philanthropic or research foundation to direct its support through an entity other than the University, it is important for the Company to consult with the appropriate University personnel—typically in the office of sponsored programs or business and finance—before transferring funds or material to benefit the University. This ensures proper consideration of the transaction by an authorized representative of the University of the Company’s objectives in providing the support. (For additional information about who may be an authorized representative at the University, see UIDP Comparing Internal Structures Guide.)

Similarly, Companies should not view making a Gift as a potential way to avoid University facilities and administrative (F&A) charges that would otherwise apply to a sponsored project or to capture tax deductions that would not otherwise apply. (For additional information on F&A costs, see UIDP Perspectives: The Costs & Value of Sponsored Research.) Use of Gifts to inappropriately curry favor with a researcher or secure other benefits or business from the University may prompt questions about the Company’s donative intent or be viewed as unethical. Gifts to Universities that benefit faculty, who have personal financial interest in the donor Company, may raise COI questions that require disclosure and management. (See UIDP Contract Accord 15: Personal Conflicts of Interest.)

A Company may wish to donate rights that it holds in patents or other intellectual property that may be useful to the University and are no longer useful to the Company. The IRS requires that the Company transfer its entire interest in order to recognize the donation as tax exempt and that the deduction not exceed the fair market value of the donation. The Company cannot retain the rights to manufacture or use any product covered by the donated patents.[4]

A Company is generally not precluded from making a Gift directly to an investigator or lab that creates a conflict of interest. However, it is incumbent upon both the Company and the investigator with the financial interest to disclose the conflict to the University. (See UIDP Contract Accord 15: Personal Conflicts of Interest and UIDP Principled Partnerships Quick Guide.)

UNIVERSITY PERSPECTIVE

Gifts are usually a small fraction of the total funding provided by a Company to a University. The principle reason for this is that Companies typically prefer to place some conditions or restrictions on funding they provide or, alternatively, expect some kind of benefit from the University in return for contributing support. For example, a Company will often provide funding to support a particular research project and, in turn, expect to receive certain rights to use the results of that research. (See UIDP Contract Accord 6: Foreground Intellectual Property.) These transactions are usually not Gifts. Instead, they are considered research grants, service agreements (see UIDP Contract Accord 13: Specialized Services/Testing Agreements), Sponsored Research Agreements (SRAs), or collaborative research agreements. At times, a Gift may be made by a Company in which a University investigator has a significant financial interest. Such circumstances can include a Gift from a Company that pays an investigator as a private consultant or employee, or a Company in which an investigator holds ownership interest, a management position, or receives value from intellectual property rights. Universities should carefully identify, manage, and report any such conflict appropriately.[5]

Gift funds are considered discretionary funds of the University and may be used by a University as cost share in sponsored projects. If the Company directs a Gift to be used for a specific project or a specific cost share, the full details and relationships should be reviewed and approved by the sponsored projects office to determine whether it meets the University’s definition of a Gift and adheres to federal policies regarding financial reporting. (For more information on how Universities are structured, see UIDP Comparing Internal Structures.)

The Company may disclaim liability or responsibility for the University’s use of the Gift, especially in the case of equipment, cell lines, genetically engineered animals, and other non-monetary Gifts whose use may pose some inherent risks. However, Universities will be reluctant to accept a Gift that requires the University to indemnify the Company for damage resulting from such use.

The University will provide acknowledgement of receipt of a Gift if requested, but the receipt will not attribute value to the Gift or accept the valuation placed on the Gift by the Company. Instead, the Company will determine valuation of the Gift for its own purposes. The University reserves the right to decline to provide a Gift receipt if the transaction does not meet the University’s definition of a Gift.

When making Gifts, both parties prefer the associated paperwork to be minimal and straightforward. Internal policies and politics that may affect how the University processes and allocates Gift funds across different departments or colleges within the University should not affect the Company.

Certain situations or conditions are in conflict with the treatment of a transaction as a Gift, such as:

  • access by Company personnel to research labs or specialized equipment;
  • Company oversight of the use of the Gift;
  • required reports describing progress of the research in which the Gift is used;
  • detailed budgets or specific statements of work related to use of the Gift;
  • preferred access to Company use of results of the research in which the Gift is used;
  • return to the Company of unexpended funds;
  • review of draft publications based on use of the Gift;
  • required protection of the Company’s confidential information by the University;
  • inclusion of boiler-plate business terms; and
  • applicability of purchase order terms, required cost-sharing, or matching of the Gift by the University.

PRINCIPLES

1. Company researchers should describe to the University what they want done with the support they intend to provide and what, if anything, they expect in return. After this is clear, Company researchers should work with appropriate University representatives to determine how to classify the transaction and what paperwork is needed to go forward.

2. Gifts of money or laboratory equipment are to be provided with minimal or no strings or conditions attached.

3. A Company may disclaim liability for the University’s use of some kinds of non-monetary Gifts.

4. A Gift is not an appropriate way to avoid University F&A charges that would otherwise apply to a sponsored project.

5. Gifts directed to a particular professor, lab, or research area should be reviewed by both Company and University administrators to assure appropriate recognition and handling.

6. Gifts directed to specific researchers or professors should be screened for potential conflicts of interest.

7. Universities should acknowledge Gifts by providing a Gift receipt.

8. Companies should properly value a Gift by accounting for anything of value received by the Company from the University in exchange for the Gift.

9. A University may decline to provide a Gift receipt if the transaction does not meet the University’s definition of a Gift. Specific reporting obligations by oversight agencies and organizations, such as the IRS, dictate the need to categorize Gifts versus grants appropriately.

OUTLIERS

The following topics are not covered in this Contract Accord:

Footnotes

[1] U.S. v. American Bar Endowment, 477 U.S. 105, 117-18 (1986) (citing Rev. Rul. 67-246, 1967-2 C.B. 104, with approval); Hernandez v. Commissioner, 490 U.S. 680, 690 (1989); and § 1.170A-1(h)(1) and (2) of the Income Tax Regulations. As cited in IRS Notice 2004-7 “Charitable Contributions of Patents and Other Intellectual Property” retrieved from https://www.irs.gov/charities-non-profits/contributors/information-on-donated-property-for-tax-professionals

[2] https://www.irs.gov/forms-pubs/about-form-8283 and https://www.irs.gov/publications/p526#en_US_2018_publink1000229696, particularly the section on Contributions From Which You Benefit

[3] ”Charitable Gifts with Strings Attached,” Wealth Counsel, blog, Nov 20, 2015, retrieved from http://info.wealthcounsel.com/blog/charitable-Gifts-with-strings-attached

[4] U.S. v. American Bar Endowment, 477 U.S. 105, 117-18 (1986) (citing Rev. Rul. 67-246, 1967-2 C.B. 104, with approval); Hernandez v. Commissioner, 490 U.S. 680, 690 (1989); and § 1.170A-1(h)(1) and (2) of the Income Tax Regulations. As cited in IRS Notice 2004-7 “Charitable Contributions of Patents and Other Intellectual Property” retrieved from https://www.irs.gov/charities-non-profits/contributors/information-on-donated-property-for-tax-professionals

[5] ”Charitable Gifts with Strings Attached,” Wealth Counsel, blog, Nov 20, 2015, retrieved from http://info.wealthcounsel.com/blog/charitable-Gifts-with-strings-attached