Paying Honoraria and Speaker Fees
NPCs are often asked to pay honoraria and speaker fees or to accept donations of honoraria. To help NPCs work through the sometimes complex issues related to compensation for outside speaking, writing and teaching, NAVREF offers the following decision tree for NPC use in determining when honoraria and speaker fees may be paid to VA employees without putting the employee at risk of violating federal ethics regulations. Following the decision tree is discussion of NPCs accepting honoraria as donations.
NPC Acceptance of Donations of Honoraria and Speaker or Writing Fees
NAVREF discourages NPCs from accepting donations of honoraria, speaking fees, writing fees and consulting payments earned by VA employees. These potentially pose ethical problems, may impose an unexpected tax liability on the donor, and require the NPC to guard against use of the funds in ways that create an actual or perceived personal benefit for the donor.
Ethical considerations: VA investigators sometimes wish to have an honorarium or speaker fee directed to an NPC as a donation in lieu of accepting it personally. Some apparently do this in the belief that donating a fee to a nonprofit relieves them of the need to make sure the subject of their presentation is not related to their official VA duties or the need to take annual leave. However, federal ethics regulations at 5 CFR §2635.807 allow federal employees to earn fees for presentations related to their official duties only if they are teaching a course requiring them to make multiple presentations during a program of education or training sponsored and funded by the federal government or by an institution of higher education, an elementary school or an secondary school. As far as we have been able to determine, this is the only exception; there is no exception for turning the payment into a donation to a nonprofit.
Tax implications: Investigators sometimes also believe they will not be assessed personal income taxes on a speaker fee if they instruct the payer to send the check to a nonprofit. However, the IRS is likely to view as income amounts earned any time there is a quid pro quo - an exchange of goods or services for payment - or when an individual exercises control over dispensation of payment (called "constructive receipt" - Treas. Reg. § 1.451-2(a) ). Such payments may be taxable to that individual regardless of whether payment goes to a nonprofit or the individual accepts it personally.
Personal benefit concerns: Finally, investigators often wish to specify - or simply expect - that their donations of speaking fees, writing fees and consulting payments will be available to support their own research. In IRS terms, their expectation is that use of the gift is "restricted" to their own research. However, the IRS has asserted that such contributions could provide a prohibited actual or perceived personal benefit to the donor if the donor subsequently controls or even influences use of the gift. This also jeopardize the nonprofit's exempt status because no nonprofit assets may benefit an individual associated with the organization. See the related article on donor advised funds linked above.
Recommendation: NAVREF’s advice to NPCs is to have a policy stating that the NPC does not accept donations of earned income such as speaker fees, honoraria, writing fees, etc. If an investigator or other recipient of such a payment wishes to make a donation to an NPC, that person should accept the payment personally, pay the applicable taxes and then make a personal charitable donation to the NPC. An NPC should accept such a restricted contribution only if the restriction does not require that the funds be used in a way that could potentially provide a personal benefit to the donor (see below for more information on "Donor Advised Funds"). When an NPC can not enforce this restriction particularly with PI contributions to their own research, NAVREF recommends against accepting these funds. An NPC might be able to accept speaker fees, etc., as "unrestricted" gifts and pool them for the general support of VA research at the VAMC, but it still would have to address ethical, tax and donor advised funds considerations. Because these gifts impose on NPCs a considerable oversight and administrative burden, NAVREF recommends a policy against accepting gifts of speaking fees, writing fees and consulting payments as the safer course for both the NPC and the PIs.
VA Committee Volunteers Receiving Honorariums
There are mandatory outside non-VA committee members that often receive honorarium for their community service. The VA Research Service often requests that the VA NPC pay for such honorarium(s). If the honorarium annually exceeds $600 a W-9 needs to be completed and signed by the honoree. However, by definition an honorarium is an ex gratia payment (i.e., a payment made without the giver recognizing himself/herself as having any liability or legal obligation made to a person for his or her services in a volunteer capacity or for services for which fees are not traditionally required). An honorarium is not considered as part of an Independent Contractor’s agreement and the two should not be confused. However, depending on what the information the honoree may review, a Non-Disclosure Agreement (NDA) is recommended. Additional a Conflict of Interest form and training should be signed and completed by each volunteer. This then will rule out any potential and/or actual conflicts.
Donor Advised Funds
NPCs accepting contributions from individuals associated with the NPC – board members, PIs, employees, etc., - must consider another wrinkle; that is, whether the donation constitutes “donor advised funds.” After some high profile abuses, the IRS in recent years began requiring nonprofits to report on their IRS Form 990s whether they maintained “any accounts over which the donor, or a person appointed by the donor, had advisory privileges with respect to the use of the funds.” (On the 2012 IRS Form 990 and instructions, see Part IV, question 6.)
The IRS’s concern is that an individual may make a donation to a nonprofit, take the personal tax deduction and then may direct the organization to use the funds in such a way that the donor receives more than an incidental personal benefit. As a result, uses of amounts in accounts reported as donor advised funds are subject to particular IRS scrutiny and there are penalties for prohibited uses. Depending on the facts and circumstances, the donations may not be deductible. Individuals who recommend or benefit from a prohibited donor advised expenditure must pay a tax equal to 125% of the benefit. Managers who approve a transaction knowing that it will confer a personal benefit on the donor are subject to tax equal to 10% of the benefit.
Guidance: When asked by NPCs whether an NPC should accept a personal contribution from an investigator in support of the investigator’s own research, it generally becomes clear during the discussion that the investigator (the donor) expects to exert considerable influence over how the funds will be spent. In such situations, NAVREF’s advice is to 1) decline the contribution; or 2) accept the donation with full awareness of the obligations it imposes on the NPC.
Acceptance requires the NPC to report the donation as donor advised funds on the 990; to provide the donor with certain notifications; and to take extra steps to guard against the possibility of a return personal benefit to the donor, the donor’s appointee, or a family member, until all of the funds have been spent.
Examples of inappropriate return personal benefits include using the funds to: pay the donor a salary; pay the donor’s daughter to work in a VA lab during the summer; purchase for the donor’s use equipment such as a laptop that has the potential for mixed business and personal use; or support otherwise acceptable research-related business travel onto which the donor adds a few days of personal vacation.
If an NPC wishes to accept a contribution from a person who may be in a position to exert influence over use of the funds, one approach is to allocate the contribution to an NPC fund used for the general support of research or education performed at the VA medical center. All expenditures from this account should be subject to deliberation and decisions made by the board collectively, with special care taken to ensure that there will be no more than an incidental personal benefit to the donor(s) to this fund. The NPC should recognize the tracking and attention to detail required in these situations and should evaluate whether it wishes to assume the responsibility.
Note: Donor advised funds should not be confused with “temporarily or permanently restricted” donations. Most donors simply state their restrictions (if any), the recipient organization decides whether the restrictions are acceptable, and if yes, accepts the contribution and uses it for the specified purpose. However, when the donor of a restricted contribution is a person who is also in a position to influence expenditure decisions after the organization accepts the contribution, the donation may fall under the “donor advised funds” rules.
Summary of NAVREF’s Advice:
NPCs should not accept donations of earned income such as honoraria, consulting fees, speaker fees, writing fees, etc.
NPCs may accept donations from persons who influence use of NPC funds if the NPC accepts the obligations this imposes on the NPC.
The potential problems may be mitigated if the donation will be allocated to a fund that is 1) used for the general support of research and education at the facility; and 2) subject to expenditure decisions by the board of directors. The board should take care to ensure that there will be no more than an incidental personal benefit to the donor or to a member of the donor’s family as a result of any expenditures.
Again, an NPC may accept contributions clearly designated as donor advised funds. However, the NPC should be fully aware of and should consciously accept the obligations that such funds impose on the NPC. NAVREF encourages any NPCs contemplating this to consult their accountant.
For more information about donor advised funds, please go to: