Ethical Standard Deep Dive: Standard 13
Throughout the month of October, members of the AFP Ethics Committee will be addressing each of the standards in our Code of Ethics. Today, Amir Pasic, the Eugene R. Tempel Dean of the Indiana University Lilly Family School of Philanthropy in Indianapolis, Ind., discusses the ethical mandates encapsulated in Standard 13 of ensuring the donor received informed, accurate and ethical advice.
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Standard 13: Members shall ensure that donors receive informed, accurate and ethical advice about the value and tax implications of contributions.
Amir: My colleague Professor Patrick Rooney, an economist and a leading expert on tax policy, properly proclaims that it is irrational to give simply because of a tax deduction. If a potential donor is just not interested in giving, a marginal tax saving should not motivate her to part with her money.
And yet tax incentives are part of the environment in which fundraisers and donors engage each other. Tax deductions and tax credits signal the collective, public value we assign to philanthropy through our democratically elected government. Some donors will care a lot about the tax implications of their giving, and it is completely appropriate to remind donors that their gift could bring tax advantages.
Since the nature and degree of the tax benefit will vary based on each person’s financial situation, it is important not to make statements that could mislead donors. This is particularly the case when donors have complex finances that come with complex tax liabilities. It is one thing to state that “your gift may be tax deductible to the full amount permitted by law,” and another to boldly declare that “your gift is fully tax deductible,” which it is impossible to know and therefore inappropriate to state categorically.
If there are reliable, perhaps government-sanctioned resources, one can direct potential donors to, that is a beneficial courtesy. But it is most important to declare one’s limited direct knowledge of each donor’s particular situation and counsel them to seek professional tax advice, reminding them that it is not your role to provide tax advice. And even if you are a certified tax expert, you should not be mixing solicitation with tax advice since your interest in the potential gift could conflict with tax advice offered in the best interest of the client.
In sum, the ethical guidance when it comes to taxes is to remind donors that they are there and to refrain from implying more than you can know.
- Members with knowledge of the tax or ethical implications of a potential contribution should realize the limit of their expertise before advising donors about the contribution and should, as a best practice include other professionals in the process.
- Members always advise donors to seek the advice of their own independent counsel regarding tax and financial implications.
- Members are mindful of the implication of practicing law without a license when advising donors about legal instruments.
- Members do not draft legal instruments obligating donors and nonprofit organizations unless legally authorized to do so.
- Members relate the specific implications of contributions, providing the prospective donors have been told of the member's credentials (or lack thereof) and have been encouraged to seek their own independent counsel.
- Members ensure that appropriate forms are completed and filed in the event of noncash contributions. They also advise donors of these requirements, if applicable.
Examples of Ethical Behavior
- Telling a donor that, to the best of one's knowledge, certain tax results are indicated in a contribution transaction, but cautioning the donor to seek the advice of his or her own advisors.
- Refusing to attest to the value of non-cash contributions except when the values are readily and publicly available, such as listed stocks, bonds, etc.
- Recommending an independent appraiser not connected to the recipient nonprofit organization when a qualified appraisal is required.
- Including on all solicitations, tickets, and receipts for special events a statement as to the fair market value of services or goods to be received by the donor in exchange for a contribution.
Example of Unethical Behavior
- Telling a donor the value of an appreciated asset without proper, current documentation.
- Telling a donor the amount of taxes he or she may avoid by making a specific philanthropic contribution without adequate knowledge of tax laws and the donor's financial responsibilities and capabilities.
- Failing to tell donors their contributions will not be fully tax-deductible when they receive goods or services in return for the contribution.
- Failing to include the fair market value of services received (dinner, dance, etc.) on material soliciting participation in a special event, including wording that informs the invitee the contribution is any amount in excess of the fair market value of the service.