Nonprofits often question how much control can a donor retain over their gift? The answer depends on who the donor is. Individual donors and private foundations play by different rules. Permissible and impermissible donor gift restrictions are as follows:
Individual Donors – No Strings Attached
When an individual makes a charitable gift, the IRS requires that it be a completed gift. That means the donor must give up their entire interest in the property being donated if they want the gift to qualify for charitable estate, gift, or income tax deduction. If they try to hang onto control, the gift may not qualify as a completed gift that can be deducted for tax purposes.
For example, an individual cannot:
- Retain the right to take the property back.
- Dictate future management decisions beyond.
- Require approval over the nonprofit’s day-to-day use of the funds.
In other words, once the gift is made, the donor must truly part ways with the property. If they don’t, the IRS may treat the transfer as incomplete – meaning no charitable deduction will be allowed.
That doesn’t mean individuals can’t set parameters. Donors may still:
- Restrict the use of the gift (e.g., “for scholarships,” “to build a new facility,” or “to support mental health programs”).
- Set timing conditions (e.g., an endowment where only earnings are spent, or a pledge payable over five years).
These restrictions are enforceable, but the key is that the donor can’t personally keep control. Once the gift is made, it belongs fully to the nonprofit, subject only to the restrictions.
Private Foundations – More Flexibility
Private foundations are different. They don’t need to worry about the gift being “complete” in the same way individuals do. That’s because the foundation itself is already a tax-exempt entity, and it doesn’t take a charitable deduction for its own grantmaking.
As a result, private foundations can and often do place more extensive conditions on their grants. They might:
- Require regular reporting and clawbacks if conditions aren’t met.
- Tie disbursements to milestones or matching requirements.
- Include specific investment or programmatic requirements.
These sorts of conditions wouldn’t fly if an individual tried to keep that level of control, but foundations can use them freely as part of responsible grantmaking.
Conclusion
If you’re advising an individual donor, remember: once they give, they give. They can set restrictions, but they must part with ownership and control completely.
If you’re dealing with a foundation grant, expect more conditions and oversight. Foundations have latitude to tie strings to their support because they’re not claiming a deduction for each gift—they’re fulfilling their payout obligation.
For nonprofits, the lesson is to carefully review donor restrictions before accepting a gift. Make sure the conditions are enforceable, align with your mission, and won’t create legal or operational headaches down the road.
Ellis Carter is a nonprofit lawyer with Caritas Law Group, P.C. licensed to practice in Washington and Arizona. Ellis advises nonprofit and socially responsible businesses on federal tax and fundraising regulations nationwide. Ellis also advises donors concerning major gifts. To schedule a consultation with Ellis, call 602-456-0071 or email us through our contact form.