It is permissible for a private foundation to donate in-kind gifts to a grantee. The private foundation will use the fair market value of the item (in this case, the lockers) for purposes of calculating the distribution amount.
That said, there are two basic issues to consider in this situation:
- Be sure to understand the grantee’s reason for asking for the donation in lieu of a grant, and evaluate it for any potential negative impact on your reputation. For example, if the acquisition of new lockers has underlying internal politics associated with it, then it could come back to the foundation in negative ways. The most likely reason for this arrangement is so the school does not have to undertake the sometimes onerous procurement processes that may apply to a public school system.
- Evaluate the foundation’s liability if the item is defective. For example, document that the school selected the lockers without input from the foundation. Include in the agreement between the foundation and the school an indemnification provision that would indemnify the foundation for any defects, damages, or injuries caused by the lockers.
Note from our legal advisor: “If the school asked the private foundation to buy and donate a bus or some other vehicle for transportation, I would probably not agree to that, even with indemnification.”