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A New Home for Past Contributions

What if your client wants to reclaim a gift to his alma mater because he does not like the ideological drift of the school?

The response of universities to the unrest in the Middle East triggered higher levels of benefactor scrutiny of their charity’s policies and practices on a number of high profile issues. Let’s assume Jane Eyre and Oliver Twist, two of your most philanthropically savvy clients, seek your counsel in structuring future gifts.

Jane is dismayed about the structural foundations of environmental, social and governance (ESG) investing and is skeptical of its ability to generate returns superior to conventional investing approaches. She would like to able to invest all future contributions in the way she deems maximizing the returns to capital while not endangering her charitable deduction. However, she prefers not to incur the expense of a private foundation nor be limited to mere advisory rights of investment recommendations to a donor-advised fund.

Oliver is wary of his alma mater’s administration  of “free speech and harassment policies” and wants to know if there’s a way for him to reclaim his gift should he not like the ideological drift of his school? He’s concerned one or several federal administrative agencies will be levying fines in the hundreds of millions of dollars for violating students’ civil rights.

What do you tell your clients?


Conditions Precedent to Giving

Jane and Oliver would like to know the income tax implications of imposing conditions precedent in any gift agreements. The regulations under Internal Revenue Code Section 170 provide clear direction for transfers subject to a condition or power:

If a charitable gift, as of the date it’s made, is dependent on the performance of some act or the happening of a precedent event for it to become effective, then no deduction is allowable unless the possibility that the charitable transfer won’t become effective is so remote as to be negligible. 

United States v. Dean interpreted the phrase “so remote as to be negligible” to mean “a chance which persons generally would disregard as so highly improbable that it might be ignored with reasonable safety in undertaking a serious business transaction.”2 Briggs v. Commissioner defined it as a “chance which every dictate of reason would justify an intelligent person in disregarding as so highly improbable and remote as to be lacking in reason and substance.”3

An example of a condition precedent not so remote as to be negligible could be a transfer contingent on a successful fundraising effort.4

So long as the client is prepared to wait before claiming the income tax deduction, a condition precedent might be an acceptable option. The challenge is drafting a condition precedent acceptable to the donor and recipient charity. A contingency provision whose likely triggering would be negligible probably wouldn’t meet the client’s goal of being able to seek return of the donation.


Conditions Subsequent 

The possibility of the gifted property or property of equivalent value returning to the donor creates the risk of creating a partial interest not deductible under the IRC. Treasury Regulations
Section 1.170A-1(e) notes that a right of reversion at the time of gift could be so remote as to be negligible. This regulation provides the example of a donor transfer of land to a governmental entity so long as it’s used as a public park. Because the possibility of the city not using the land is so remote as to be negligible, the taxpayer receives an income tax deduction in the year of initial transfer.


Returned Contribution

If a donor takes a charitable income tax deduction, the returned amount may be required to be included in gross income under IRC Section 111.5 To the extent Jane derived a tax benefit, there will be some inclusion in gross income. The annual accounting principle requires the amount of tax for the year of recovery be based on taxable income, filing status and applicable tax rates at that time. A tax benefit will include any increase of a carryover that hasn’t yet expired “before the beginning of the taxable year in which the recovery or adjustment takes place…”6

Example: A donor contributed $5 million for an endowed professorship in 2021 when their adjusted gross income (AGI) was $15 million. In 2023, the donee returns the gift because the search committee couldn’t agree on finalists meeting its requirements. The donor will have income of $5 million. Had the donor only deducted $1 million, the inclusion is limited to that amount. In the unlikely event that the donor took the standard deduction, no amount returned would be included in income.


Investment Management Control

Private Letter Ruling 2004450237 allowed a deductible contribution though the donor retained a right of investment pursuant to a limited power of attorney. The IRS didn’t find that the arrangement created an impermissible nondeductible partial interest under IRC Section 170(f)(3). The transfer was unconditional and irrevocable. The funds were under the exclusive control of the donee. The donor surrendered all property rights under the exclusive control of the donee, including the right to pledge or encumber. The donee had the unfettered right to terminate the limited power of attorney at any time for any reason. Severe losses automatically triggered revocation.


Weighing the Options

As the light of scrutiny brightens on the policies of large nonprofits, advisors need to be prepared to present options to those donors seeking either return or a new home for their past contributions. Clients must weigh the comparative merits of delaying a deduction because of a condition precedent or risk a future inclusion in income through the triggering of a condition subsequent.



1, Treasury Regulations Section 1.170A-1(e).

2. United States v. Dean, 224 F.2d 26, 29 (1st Cir. 1955).

3. Briggs v. Commissioner, 72 T.C. 646, 657 (1979), aff’d without published opinion, 665 F.2d 1051 (9th Cir. 1981).

4. In Briggs, ibid., the taxpayer was denied a deduction because the donation in question was conditional on sufficient funds being raised. The fundraising environment suggested great difficulty, if not impossibility, in being successful. Legal counsel would be prudent in seeking professional fundraising counsel to assess the likelihood of success or failure of any fundraising effort.

5. Internal Revenue Code Section 111 states: “Gross income does not include income attributable to the recovery during the taxable year of any amount deducted in any prior taxable year to the extent such amount did not reduce the impact of taxed imposed by this chapter.”

6. IRC Section 111(c).

7. Private Letter Ruling 200445023 (Nov. 5, 2004).

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