A donor is permitted to direct gifts to a charitable organization through Donor Advised Funds (DAFs). A contribution to qualifying DAFs (often held at community foundations) is treated by the Internal Revenue Service (IRS) as a charitable contribution at the time of the contribution to the DAF. A donor may subsequently advise as to which charitable organization or organizations distributions are to be made. However, IRS regulations prohibit the donor, donor advisor, or the donor’s family member from receiving any benefit in excess of an incidental one as a result of the DAF distribution. A donor’s receipt of a benefit that is more than incidental (referred to as an “impermissible benefit”), may result in problems for the entity maintaining the DAF (e.g., loss of tax exempt status) and/or the donor and/or family member (e.g., significant excise taxes). It could also put the charitable organization to which the gift was given at risk of losing future funding from the DAF.
A ticket or table purchase to an event may be considered an impermissible benefit resulting from a DAF distribution as it is viewed as a quid pro quo for the DAF distribution conferring a more than incidental benefit on the donor and/or family member. Furthermore, guidelines published by several Donor Advised Funds prohibit the donor from using the DAF distribution to cover the deductible portion of an event ticket or table price and use other (non-DAF) funds to cover the non-deductible portion. Such guidelines also specify that a donor may not contribute to the charitable organization through a DAF and, in connection therewith, receive complimentary admittance to an event.
A donor may still support an organization through a DAF gift if the donor declines all benefits that would have otherwise been provided as a result of the gift. Such gifts support the work of the organization – if given to IRC, can provide support of our work with refugees around the world and in the United States. If a donor also wishes to purchase a ticket or table to a charitable event and receive the corresponding benefits, a separate non-DAF gift may be made for a ticket purchase.
And, as always, for information regarding your legal or tax situation, please consult your own professional advisor.
Published February 2014