Recently I was talking to a client of mine about some of their permanently restricted net assets when he blurted out, “I wish I could just get rid of these little, old amounts that have been around forever! They’re more trouble than they’re worth!” Before I could get my reply out, he followed up with, “I’m not being serious, of course. I know that’s the whole point of permanently restricted contributions. I’ve come to terms that they’ll never go away!”
Actually, there is a way to make certain small amounts of permanently restricted contributions “go away,” assuming they’ve been on your books for a couple of decades or longer. It’s a provision in the Management of Charitable Funds Act, which is the law that governs expenditures of charitable endowments that the State of Arizona follows … and it’s not as difficult as you might think!
First of all, I should clarify what I mean when I use the words “little, old contributions.” Little means less than $50,000. Old means 20 years or more. If your contribution in question meets those requirements, and if meeting the restrictions is impracticable or wasteful, you can submit a plan of release or modification to the Attorney General for approval. There is an automatic approval after 60 days, as long as the Attorney General doesn’t object to the plan within that timeframe, and – of course – the contribution must be used in accordance with the charitable mission of the Organization.
Organizations with funds that do not fit into these criteria must petition the courts to modify or release the restriction.
By Jessica Puckett Moulder, CPA, CFE