Title: Policy on Charitable Contributions in Lieu of Compensation/Payment for Services
Effective Date: 12/1/2020
Issuing Authority: Vice President and Chief Financial Officer
Contact: Janet Hanson at email@example.com or 507-786-3018
Last Updated: 12/1/2020
On occasion, a guest speaker may wish to “donate” their speaking fee or honorarium to St. Olaf. In order for the speaker to avoid taxable income, planning ahead is a necessity. In a situation where planning is not done ahead of time, the speaking fee or honorarium is taxable as the IRS believes the speaker has “constructively received” the income, because there was control over the income and there was a failure to act prior to having the right to receive the income. Therefore, even if the donation is made directly to the College on the speaker’s behalf, the IRS would still consider the income as taxable to the speaker (although the speaker would be allowed a charitable contribution deduction).
Means by which to reduce the potential tax liability to the individual:
- If there is an agreement in place prior to the services being rendered, then the speaker can avoid the “constructive receipt” of income issue and the services will be donated directly to the College in lieu of compensation. The Waiver of Payment form must be completed prior to the services being rendered. If this request by the speaker occurs after the services are provided, the fee or honorarium must be reported as income.
- If properly planned ahead of time, the speaker or faculty/staff is entitled to “suggest” an appropriate donee for the foregone income. However, a key element in keeping the speaker and faculty/staff distanced from “constructive receipt” would be their detachment from the ultimate decision process.
The College is allowed to distribute the funds donated in accordance with its general policies and for its exempt purposes to the extent that the monies (the foregone income) are controlled by the College, and there is related detachment on the part of the speaker and faculty/staff sponsor. In this case, there is no income to the speaker.
The College’s decision to distribute the funds will be made by the Advancement department.
Any questions related to this IRS regulation may be directed to the Business Office.