BLS Insights

Gifts from Donor-Advised Funds

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Donor Advised Funds - Nonprofit CPA Firm.Contributions are a large source of revenue for many nonprofits. When your nonprofit organization receives a charitable contribution, we know you want to thank the donor as soon as possible and send them an acknowledgment letter. Before you mail out that letter, consider the following facts about gifts from donor-advised funds.

A donor-advised fund is a charitable giving vehicle sponsored by a public charity that allows an individual to make charitable contributions to that charity and be eligible for an immediate tax deduction, and then recommend grants over time to other nonprofit organizations. When an individual gives to a donor-advised fund, they are eligible for a tax deduction at that time. This means when you receive a gift from the donor-advised fund, you should not send an acknowledgment letter to the individual informing them that their gift is tax-deductible. You may send a nice thank you letter, but do not acknowledge the contribution as a tax-deductible gift.

On a related note, the IRS prohibits donors from fulfilling a charitable pledge with a payment from a donor-advised fund. When the donor makes a contribution to a donor-advised fund, the sponsoring organization has legal control over that money. The donor retains “advisory” privileges, as explained above, but the sponsoring organization ultimately owns the funds. A charitable pledge is the obligation of the individual donor to fulfill at a future time; therefore, a gift from a donor-advised fund cannot satisfy this obligation.

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Casey A. Hagy, CPA

Manager
Accounting & Auditing

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