Updated January 2009
Question: What are the legal and practical considerations for administering a matching gift program?
Matching gift programs are a feature of many corporate giving programs and company foundations. Legal and administrative requirements can vary depending on whether the matching gift program is administered by a company foundation or a corporation giving program, and thus the corporation should choose the vehicle that is best suited for a particular program. Precautions should be taken to avoid self-dealing that could result if the gift fulfills the pledge of a disqualified person or if the employee receives goods or services on account of the gift.
What are the administrative/legal requirements for matching gift programs?
There are two basic parts to a matching gift program: verifying that the employee or other donor has made a gift to a qualifying charity and documenting the matching gift program’s contribution to that gift. Many programs require the employee to complete a form and send it along with his or her gift to the charity. An appropriate officer of the charity attests to the charity’s receipt of the employee’s contribution and sends back the form to the corporation. The corporation then determines whether the gift qualifies for a match and, if so, sends out its contribution – singly or bundled with other gifts to the same institution. Some programs are administered by third-party service providers, while others have telephone or on-line systems to reduce administrative costs.
Many grantmakers request a receipt from the charity for a grant payment. A receipt is required for matching gifts of over $250 from corporate giving programs; otherwise charitable income tax deductions claimed by the corporation may be denied. For gifts $250 or below, the corporation is required to maintain a written record of the gift, such as the bank record. A receipt is not necessary for gifts from corporate foundation-run programs. For more information on why receipts are not required for the foundation, see “My Lawyer Made Me Do It.” Thus it may be administratively simpler to have a corporate foundation pay out the hundreds of grants that a matching gift program may generate rather than having a corporate giving program engaged in extensive record keeping. For more information about donation recordkeeping requirements see Recordkeeping Requirements for Monetary Gifts.
An appropriate receipt will state the amount of the contribution (or a description of property other than cash). It should also state that no goods and services were provided in exchange for the gift. Treasury Regulations on charitable gift receipts provide that any goods and services received in exchange for a matching gift must be attributed to the employee’s portion of the gift. Thus it will be the employee’s responsibility to deduct the value of goods and services from his or her contribution. Some matching gift programs may match only the portion of an employee gift that exceeds the value of goods and services received, however, there is no legal requirement for a program do so. For more information on what to do when the donor employee has received a thank-you gift from the donee, see Matching Gifts and Donor Benefits (February 2008).
Can a corporation or foundation pay out its matching gifts through a donor advised fund?
Yes, a corporation or foundation may create a donor advised fund at a public charity to administer the matching gift program. In this case, the responsibility for validating the charity’s tax status can be shifted to the organization running the donor advised fund. The corporation running a non-foundation giving program would also be relieved of collecting receipts to substantiate charitable contribution deductions. If your company wants to match gifts internationally, consider using an organization that operates donor advised funds and specializes in international grantmaking. Remember, though, that when creating a donor advised fund, the matching gift program retains only the right to make non-binding recommendations to the charitable organization regarding distributions from the fund.
What kind of gifts can the corporation or foundation match?
In general, corporations and foundations can match gifts to any public charity. While many programs only match to gifts to educational institutions, no legal requirement so limits programs. Some exclude gifts to religious organizations. Again, this is a policy, not a legal choice.
Can matching gifts be paid to an employee’s donor advised fund?
Yes. A donor advised fund is a fund at a public charity where the donor has the ability to recommend distributions.
Can corporations and foundations match gifts to supporting organizations?
Supporting organizations are a type of public charity that carry out their exempt purposes by supporting one or more publicly supported section 501(c)(3) organizations. Examples include hospital foundations and university foundations. While matching gifts from a corporate giving program to a supporting organization does not raise any particular complications, grants from a corporate foundation to supporting organizations have become increasingly complicated. Corporate foundations need to determine the type of donee supporting organization since grants to certain types of supporting organizations will not count toward the corporate foundation’s payout requirement and will require expenditure responsibility. Failure to identify the supporting organization properly and exercise responsibility may result in excise taxes. For more information on private foundation grants to supporting organizations, see Grants from Private Foundations to Supporting Organizations after the Pension Protection Act of 2006.
Can corporations and corporate foundations match employee donations to private foundations?
Yes, however, a corporate private foundation will be required to exercise expenditure responsibility (see flowchart) over a grant to another private foundation. Additional rules must be followed to ensure that the grant counts as a qualifying distribution toward the payout of the corporate private foundation. To ease administration, many corporate foundations restrict their matching programs to match gifts to public charities. By establishing an official policy, both the corporate giving program and corporate foundation avoid the problem of employees who discover you won’t match their gifts after the fact.
Can corporations and giving programs match employee donations to or from intermediary organizations in which the employee is involved (e.g., an employee’s donor advised fund, a private foundation controlled by the employee, or a supporting organization established by the employee)?
Yes. Corporate matching programs should provide information about the types of eligible organizations in their employee matching gift policies. Corporate matching programs should also be aware of the possibility of double-dipping, and may want to address this issue in their policies. Double-dipping occurs, for example, when the corporation or giving program matches an initial employee gift to his or her donor-advised fund. The employee then recommends a distribution from his or her fund, and the corporation is presented with the request to match the donation from the employee’s fund. Effectively, the employee donor has succeeded in having the corporation make two contributions while he or she has made only one. While the employee does not receive an impermissible personal benefit from the double match, a giving program may determine that this result is inconsistent with the purpose of its matching program.
Are there any gifts that should not be matched?
A foundation-run matching gift program that fulfills the pledge of a disqualified person (a substantial foundation contributor or foundation manager and relatives of the same and the corporation itself are all disqualified persons; the top executives of a related corporation also may be considered disqualified persons) may run afoul of the self-dealing rules. This is because foundation assets are being used to relieve the disqualified person of a financial obligation. In other words, if a disqualified person promises a sum of money to a charity and then seeks to have the foundation matching gift program pay part of that pledge, the foundation will have likely committed an act of self-dealing. A private letter ruling regarding a corporate charitable donation makes clear that the IRS considers satisfying disqualified persons’ legally enforceable pledges as an act of self-dealing (see PLR 9703020, January 17, 1997). The foundation is not prohibited from paying an amount in addition to a pledge that the individual/corporation donor has fulfilled. The problem arises when the giving program’s incremental increase is part of the pledge or offsets any portion of the pledge that the donor has not fulfilled.
Where a corporation has a matching gift program that promises to match employee donations, the program may be deemed a pledge. If the matching gift program is switched mid-year from the corporation to a corporate foundation, the foundation may conceivably be seen as fulfilling the corporation’s pledge to its employees to match gifts. Corporations should close out their matching programs before starting a matching gift program at the corporate foundation.
Is there a minimum or maximum to the corporation or foundation match?
No, the matching gift program may match either a portion or a multiple of a gift. Some programs will double or triple the employee or board member’s gift; others may only match a percentage. Some programs set a floor on the size of the gift they will match; almost all set a ceiling on the maximum that will be paid. It is possible, though not necessary, to match only the tax-deductible portion of the employee or board member’s gift to a charity.
What about matching gifts to foreign charities?
For multinational corporations and families, this question arises often. If the program is run through a company foundation, the same rules apply as with any foreign grant. The foundation must perform expenditure responsibility, unless the charity has a 501(c)(3) determination letter from the IRS, a domestic “friends of” organization, or the charity is otherwise determined to be the equivalent of a U.S. charity. Where the program is administered by a corporate giving program, the corporation may generally not take a charitable contribution deduction for a matching gift to a charity not organized and operated in the United States. In some cases, certain treaties with foreign countries (e.g., Canada and Mexico) may ease these restrictions.
Do matching gift programs need to comply with anti-terrorism regulations?
All program managers should be aware of the requirements of Executive Order 13224 and provisions of the USA Patriot Act that prohibit providing support to terrorist organizations. The rules apply equally to grants made to domestic public charities, not just to those distributed to foreign charities. Currently, there are no government issued written guidelines on compliance that provide an inviolable safe harbor to grantmakers. Verification and compliance checks can be especially costly for corporate grantmakers distributing thousands of small grants through their matching gift programs. Many programs have instituted some form of verification and/or use third-party vendors to review each matching gift for compliance. Grantmakers will want to review the Principles for International Charity, developed by the Treasury Guidelines Working Group of Charitable Sector Organizations and Advisors (March 2005) and other materials on international grantmaking and anti-terrorism compliance available on the United States International Grantmaking websites.
Pension Protection Act of 2006, Council on Foundations
Seeking a Safe Harbor, Foundation News & Commentary, May/June 2004
Corporate Giving and the Law: Steering Clear of Trouble. Council on Foundations, 1999.
Council on Foundations, Corporate Services Electronic Discussion Group Corporate Compilations. Summaries of email group discussions among Council corporate members on selected topics of interest. The following are available to members on the topic of matching gifts:
The HEP/CASE Matching Gift Network maintains a database of over 14,000 matching gift companies