Saying ‘thank you’ for charitable gifts made through Donor Advised Funds
At Dugan & Lopatka, we are seeing more and more nonprofit organizations receive charitable gifts from donor-advised funds. You can think of these like charitable investment accounts. Donors can contribute cash or other assets to a donor-advised fund, making them generally eligible to take an immediate tax deduction. Then, those funds can be invested for tax-free growth and the donor can recommend grants to any IRS-qualified public charity.
Donor-advised funds are growing in popularity because they are one of the easiest and most tax-advantageous ways to give to charity. For nonprofits, it’s important to know where and how to direct the gift acknowledgement or “thank you”.
Prompt and thoughtful gift acknowledgements are an essential fundraising activity. But they also serve a practical purpose, as IRS regulations govern what documentation is needed for donors to claim a deduction. As such, donors have come to expect this documentation with their gift acknowledgement.
The IRS provides guidance on gift substantiation on their website. In summary, the guidance suggests that gift acknowledgements contain:
- A statement that the nonprofit is a public charity recognized as tax-exempt by the IRS under Section 501(c)(3);
- Either (a) amount donated (if cash or cash equivalents); or (b) description of the property donated (the nonprofit should not attempt to assign the cash value of property; doing so is the donor’s responsibility);
- The date the donation was received;
- Either: (a) statement that the organization did not provide more than insubstantial goods or services in return for the donation, such as, “No goods or services were received in return for this gift”; or (b) if the gift was $75 or more, and the nonprofit provided something of more than insubstantial benefit in return for the gift (such as tickets to a special event, or attendance at an event where donors receive a meal), then the nonprofit must provide a good faith estimate of the value of the goods/services provided by the nonprofit to the donor, such as the market value of tickets to the event, or the actual cost of the dinner (even if the food was donated to the charity).
What if the gift is made through a Donor Advised Fund?
If a donor directs a grant to your organization through a Donor Advised Fund, you’ll most often receive their name and contact information along with the grant. While it’s still smart to send an acknowledgement, thanking the donor for the gift, you don’t have to include language about the gift being tax deductible because the DAF already provided a tax receipt to the donor.
An example of this could be, “Thank you for recommending the generous grant of $750, that we received on <insert date>, through your donor advised fund at Fidelity Charitable.”
For more information on gift substantiation, visit the IRS website.
Since 1974, our trusted advisors have partnered with nonprofit organizations to navigate every step of the financial journey. At Dugan & Lopatka, our CPAs and consultants are always on the cutting edge of changes in the nonprofit sector. We understand the challenges you face—the special accounting, auditing and reporting requirements of your organization—and we use our deep expertise to deliver exceptional service tailored to your needs.