Donations in Lieu of Honoraria
In some instances, a University of Washington employee who is to receive an honorarium or payment for services from another institution may not wish to receive the honoraria, but instead may wish for it to be donated to a particular charity or institution.
In most cases, these payments will be considered taxable income to the University employee, even though donated. The IRS treats such payments as “constructively received” by the speaker, even though donated to another organization. The principle of “constructive receipt” refers to the speaker’s ability to control where the payment is directed. However, the speaker who constructively receives income is entitled to a charitable donation deduction as a result of this transaction.
There are a limited set of circumstances under which a speaker may avoid constructively receiving honoraria or other speaking fees. The only entity to which a payment may be made without constructive receipt arising is the individual’s employer (the University of Washington), and only if the below criteria are met.
Situations falling outside of the below criteria should be treated as taxable income to the speaker. Payments are received or constructively received in all instances other than when the employee may fairly be said to have worked in a voluntary capacity for the University and there is appropriate documentation.
1. An agreement must be entered into prior to the services being rendered that the services are to be donated to the University of Washington, and that payments are to be made directly to the University, rather than to the employee. Contemporaneous written documentation, outlining this agreement, should be executed by both the employee and the payor.
2. The payment should be treated in a manner similar to any other gift given to the University and should be made to a sufficiently broad unit (at the departmental level or above), should not be under control of the speaker, should not be specifically designated as for a particular individual or program, should be overseen by an individual at a higher level than the speaker (preferably a dean or chair), and should follow typical University procedures for disbursement and expenditure once received.
It is critical to ensure that the speaker does not exercise control over the payment—if the speaker, rather than the University, controls the payment and its ultimate expenditure or use, constructive receipt will arise. This does not mean that the donation may not ultimately be allocated to the speaker’s programs or research—however, the speaker may not have the ability to control whether the payment is so allocated.
Prohibition on Donations in Lieu of Honoraria by UW
The University of Washington, as an Institution of Higher Education of the State of Washington, is prohibited from making donations of state funds. This includes donations in lieu of honoraria—even if specifically requested by the speaker.
The University of Washington, may, in limited circumstances, make payment directly to an individual’s place of employment, but only if an invoice is prepared and provided to the University of Washington by the ultimate payee for the services rendered and provided prior to payment.