Stuart,

There are some complex tax issues associated with this
kind of transaction.  The consequences, legal and
otherwise, often turn on the specific facts.  Generalizations
are hard to make, but here's a few general thoughts on the
issue of deductibility of the faculty member's contribution as
a charitable contribution:

First, it is not uncommon or impermissible for donors to
designate gifts for the support of an individual faculty
member's research.  Watch for excessive earmarking,
which can defeat the donative nature of the gift.  Be alert for
collusion between the donor and the faculty member to
characterize the transaction as a gift when in fact there is a
quid pro quo expected in return.  This could be to obtain a
charitable contribution deduction for the donor, but I have
also heard of it being done to evade indirect costs at
institutions that waive overhead on gifts.

Your situation presents the obvious risk that the
purported gift would not be considered a charitable
contribution (and therefore would not be deductible to the
donor), because of the possibility of donor control, donor
benefit, and/or excessive earmarking (benefit to a single
individual).  A donation in which the donor retains some
measure of control or influence is not necessarily
non-deductible, but at some point donor control negates
donative intent.  At a minimum, I would recommend that you
consider have the donor/faculty member's decisions
reviewed and approved by a department chair or other
disinterested authority.  Similarly, some measure of indirect
or incidental donor benefit does not necessarily render a gift
non-deductible, but at a certain point the transaction ceases
to be a gift.  I would be uncomfortable with an arrangement in
which the donor could unilaterally direct that any of the
donated funds be paid to him or her, even for "reasonable
compensation."  Third, a gift for the benefit of a single
individual may not be considered "charitable."  There is a
fair amount of case law and  IRS rulings in this area,
including one (Rev. Ruling 61-66) in which the IRS said that a
gift to a university with instructions that it be disbursed to a
particular professor was not deductible.

Deductibility of the contribution is technically the faculty
member's problem, not your institution's, but be careful not
to give unwitting tax advice or lead the individual astray.  I
recommend you consult with campus counsel and advise
the faculty member to consult his or her personal tax advisor
as well.  When you acknowledge the donation (required for
gifts over $250), make sure you state that is is deductible "to
the extent allowed by law."

FYI, there can be some private inurement problems with this
kind of transaction if your institution is a 501(c)(3), as state
university foundations usually are.  Campus counsel can
advise you on this.

Also FYI and for others on the listserv, I have encountered
the situation where a researcher who anticipates the receipt
of either compensation or an "honorarium" from an outside
organization seeks to have the monies "donated" to her
institution to support her research.  This situation raises not
only deductibility and private inurement questions, but also
questions of realization and reporting of taxable income.  I
would be curious how other institutions deal with this.

Jim Simpson
General Counsel
Public Health Institute
2001 Addison St., 2nd floor
Berkeley, CA 94704
(510) 644-8200
xxxxxx@publichealth.org