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Nonprofits: Fundraising & Development

Restricted Gifts: A Primer

12.04.25 | Linda J. Rosenthal, JD
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“The end-of-year giving season is a huge deal for the nonprofit sector, driving billions of dollars in the span of a month, with a vast amount of that giving coming in the final few days of December alone!”

Generally, over 40% of annual revenue is raised during this otherwise stressful and hurried year-end period. Under “normal” circumstances, the pressure is off-the-charts for a successful and problem-free fundraising finale. Of course, in 2025, the challenges have been extraordinary. Never before has the spigot from the U.S. Treasury been shut off so abruptly and dramatically.

By early February, many 501(c)(3)s likely ripped up their carefully developed 2025 fundraising plans.

A Successful Kickoff

For over a decade, the December fundraising frenzy has been launched through the popular national event called “Giving Tuesday.”

Although 2025 was “… full of upheaval, uncertainty, and loss in communities and across sectors,” the massive push on December 2, 2025, has met and exceeded expectations, according to top officials. “The GivingTuesday Data Commons estimates that 38.1 million people participated in Giving Tuesday 2025 and $4.0 billion was donated in the US alone.”

These are increases from Giving Tuesday 2024 – which itself had resulted in year-over-year growth. See Generosity Sweeps the Globe: Participation and Donations Rise on Another Record-Breaking GivingTuesday (December 3, 2025) givingtuesday.org/blog. “The fact that people show up so strongly not just on GivingTuesday, but every single day, in the spirit of generosity, speaks volumes about our ability to unite around a shared vision for a better world….”

The Lure of Restricted Gifts 

Buoyed by that burst of good news, most organizations will – nevertheless – remain under extraordinary pressure to find money. The temptation this December to gratefully grab any financial lifeline offered will be overwhelming.

Organizations with little or no history of gifts with strings attached may accept one or more of these “restricted donations.”  Generally, “donor-restricted funds are created when gifts are received subject to donor stipulations or a binding understanding with the donor. Donor-restricted funds are similar to an irrevocable gift subject to conditions.”See Managing Donor-Restricted Funds (April 14, 2014) Caritas Law Group/Charity Lawyer.

“Giving donors the power to restrict their gifts for a specific purpose or program or to restrict the timing and amount of expenditures is a powerful giving incentive. . “Restrictions give donors comfort that the organization they have chosen to support will use their gift as they envision.”

On the other hand, it may cause complications – often serious ones – that can surface well after the champagne glasses are stored away. “Managing restricted funds is one of the most challenging accounting tasks nonprofit organizations face, even those with strong financial practices.” See What Nonprofits Need to Know About Restricted Funds (October 6, 2025) chazinandcompany.com.

It’s critical to proceed thoughtfully before going down the path of restricted charitable contributions. The upside of financial rescue is tempered by the real hazards of obligations and minefields, including much more complex recordkeeping.

Restricted Donations “may create legal liability to honor the donor’s intent even in the face of greatly changed circumstances or other burdens. And they may destroy the particular donor relationship involved in the agreement or create bad publicity community-wide that could affect other potential benefactors’ decisions on giving in the future.”

Restricted Gifts Generally

“Nonprofit funding is the backbone of charitable organizations, allowing them to fulfill their missions and serve their communities. However, not all funds received by nonprofits come with the same level of flexibility. Understanding unrestricted vs. restricted funds is crucial for financial planning, sustainability, and compliance with IRS rules on restricted donations.” See Unrestricted vs. Restricted Funds: What Nonprofits Need to Know (undated) The Nonprofit Cooperative .

“While restricted funds ensure donor intent is honored, unrestricted funds provide the financial flexibility nonprofits need to cover operational expenses and respond to emerging challenges.”

“Most gift restrictions are on the use of the gift, the investment of the funds, or on the amount or timing of the expenditures. For example, the designation of a fund to support scholarships is a restriction on the use of the funds; whereas, a designation of a fund as an endowment fund is a restriction on the timing and amount of the expenditures from the fund.”

Generally, “donor-restricted funds are created when gifts are received subject to donor stipulations or a binding understanding with the donor. It is similar to an “irrevocable gift subject to conditions”.

A variation on the time and manner of creation arises when charitable fundraising/solicitation materials state the specific uses to be made of the fundraising proceeds. Often, in those situations, a “donor-restricted gift” is deemed to have been made.

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Conclusion

The prudent and prevailing advice from experts about the decision to pursue or accept a restricted grant is – in a nutshell – don’t do it.

However, occasionally, in light of exigent circumstances, an exception can be made. But certain stringent conditions should be in place, including – for instance: if the “… donation agreement reserves the organization’s right to broaden or alter the gift’s purpose and use if, at a later date and in the organization’s discretion, the gift’s original purpose no longer meets the needs or serves the organization’s mission – unless the Board expressly decides otherwise at the time of the donation agreement….”

– Linda J. Rosenthal, J.D., Information & Research Director

 

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