Donor-imposed restriction definition
/What is a Donor-Imposed Restriction?
A donor-imposed restriction is a limitation on how a contributed asset can be used. This restriction can address the purpose to which an asset is put, the time period during which it can be used, or both. A restriction may be permanent, or limited to a specific period of time or an event, after which the restriction is lifted.
Explicit and Implicit Donor-Imposed Restrictions
An explicit donor-imposed restriction is a restriction that has either been directly communicated to the recipient or conveyed in writing. An implicit donor-imposed restriction is derived from the manner in which a contribution is solicited from the donor. For example, if you contact a potential donor about giving money for the construction of a new museum exhibit, then it is implied that any resulting donations will be spent on that exhibit.
Example of a Donor-Imposed Restriction
Here are several examples of donor-imposed restrictions:
Asset donation. A donor contributes a delivery van to a nonprofit organization, and imposes a restriction that it can only be used to ferry disabled people to the grocery store for the next five years, after which it may be sold. This is an example of both a usage restriction and a time restriction.
Cash donation. A local philanthropist donates $100,000 to a community health center with the condition that the funds must be used to purchase medical equipment for a new pediatric clinic. This is a usage restriction.
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FAQs
How Do Donor-Imposed Restrictions Differ from Board Designations?
Donor-imposed restrictions are legally binding conditions set by donors that the nonprofit must follow when using contributed funds. Board designations, by contrast, are internal decisions made by the organization’s governing board to earmark funds for specific purposes but can be changed at any time. Thus, donor restrictions are external and enforceable, while board designations are internal and discretionary.