Donors can impose two different types of stipulations on contributions provided to nonprofits, restrictions and conditions. Donor-imposed restrictions are determined after donor-imposed conditions are considered. Donor-imposed conditions determine when the contribution is recognized as revenue, while donor-imposed restrictions determine the net assets classification only (net assets with or without donor-imposed restrictions). Let’s take a deeper dive into donor-imposed restrictions.
FASB ASC 958-605 defines a donor-imposed restriction as:
“A donor stipulation that’s specifies a use for a contributed asset that is more specific than broad limits resulting from the following:
- The nature of the not-for-profit entity
- The environment in which it operates
- The purposes specified in its articles of incorporation or bylaws or comparable documents for an unincorporated association.”
These restrictions can be temporary, to be used by a specified date or for a specified purpose. They can also be perpetual, and require resources to be maintained in perpetuity. Simply put, donor-imposed restrictions are a way for the donor to tell you what to spend their money on. For example, my contributions must be spent on program A or at or by a specified time.
Donor-imposed restrictions can be either explicit or implied. Explicit restrictions are normally written or directly communicated. I want my money to be spent to fund the local homeless shelter or on disaster relief. Implied restrictions can be little more tricky. They come from the way you solicit the contribution. If you ask me to give to your capital campaign for the expansion of your campus. I expect the money I give to be used for that purpose. The same concept applies if you solicit funds by telling the donor their funding will be used to purchase Christmas presents for children or personal protective equipment. That is an implied donor-imposed restriction, the donor believes the money they give you will be spent for specific purposes only.
If you have questions regarding the recognition of a contribution, or for more information, please contact Mark Robins.