self-support by professor -Reply JIM SIMPSON 17 Sep 1997 13:54 EST
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