Our Ask An Expert series features real questions answered by Claire Axelrad, J.D., CFRE, our very own Fundraising Coach, also known as Charity Clairity. Today’s question comes from a nonprofit employee who wants advice on how to credit and acknowledge donor advised fund gifts in their donor database:
Dear Charity Clairity,
I’m unsure how to enter donor advised fund gifts in our database so they’re credited and acknowledged appropriately. And do I thank the donor or the administrator? My boss says we only thank the administrator, because the donor has already been thanked for their gift and received a tax deduction. Is this right?
No, this is not right. Because the donor has not been thanked by YOU. And you never, ever want to pass up an opportunity to show your gratitude! Plus, the donor wants to know you received the gift, and will put it to work as they intended. This is what establishes trust, which is the foundation of any sustainable relationship.
So, let’s track what you should do from the moment you receive a recommended distribution from a donor advised fund (DAF).
1. Hard credit the gift under the record of the holder of the DAF
While the individual donor made the recommendation to send this donation to you, the final decision about whether to approve donor recommendations is made by the DAF holder. They have control in that there’s no legal requirement the DAF holder follow a donor’s recommendations; in practice, they almost always do so.
2. Soft credit the gift on the record of the individual who made the grant recommendation
This way you’re able to track and steward supporters who, though they did not make a gift directly (donor advised fund gifts are sometimes called “third party gifts”), did have considerable influence over the decision. As with all individual donors, you want to engage with them repeatedly throughout the year to build a relationship that will inspire their loyalty.
Make sure when you generate reports you include soft credits so you don’t inadvertently omit individual donors from recognition lists, cultivation mailings, and future appeals.
3. Send an acknowledgement to the individual donor
Just because the check came from their DAF, and not from the donor directly, is no reason for you to ignore the fact that saying thank you is just about the most important thing you can ever do! After all, it’s the individual donor who directed the gift your way. They will consider this to be a gift from them, not a bank account. Your thank you lets the donor know they’re making the impact they intended to make.
- Do not send a transactional receipt that looks like it came from the finance department. Send the same kind of warm, personal, emotional thank you letter you would send to any other donor.
- Do not thank donors for their “tax-deductible gift.” They already took the tax deduction when they gave to their DAF. A good way to handle this is simply to say “Thank you for your $250 gift made from your Jen Generosity Donor Advised Fund.” This gives a heads up to their accountant not to double count this when they prepare your donor’s tax return.
- Do not tell the donor they will receive anything of value. This includes raffle tickets, tickets to galas and other special events, auction items, preferential seating or parking at athletic events, and any other benefits. The IRS is serious about this. Donors, donor advisors, or anyone related to either of them who recommend grants and receive, directly or indirectly, more than an incidental benefit, are subject to an excise tax equal to 125% of the grant [IRC section 4967].
- Do not offer the option of a bifurcated payment to cover the non-deductible portion of a fundraising event ticket or membership. This used to be allowed, but the IRS has specifically ruled that costs associated with fundraising events, or memberships with deductible and non-deductible portions, cannot be separated. For example, if a ticket breaks out the cost for the non-deductible dinner and the tax-deductible gift to charity, the donor must pay from sources other than their DAF for the full value of the ticket and not just for the non-charitable amount. The mere opportunity to attend is considered of greater than incidental benefit. [IRS Notice 2017-73, Sec.3]
4. Send an acknowledgement letter to the DAF administrator
Remember, the folks running these funds are people too. If you build a positive relationship with them, they just may recommend you to other donors looking to enact the values your organization enacts.
Do not ask the DAF sponsor to let you know this gift fulfills the donor’s pledge. IRS regulations prohibit a donor from fulfilling or reducing the balance of a ‘pledge’ (which is legally enforceable) with a payment from a DAF. This is because, technically, once the donor has made the gift and received the full benefit of the tax deduction, the donor no longer has ownership or control over the money. The IRS has eased up on this somewhat when you’re talking to your individual donor (I still wouldn’t recommend telling donors the gift fulfills a pledge; you might be okay if you reference their ‘intent to give’), but DAF sponsors are still not allowed to put this in writing.
Hopefully this demystifies recording and acknowledging donor advised fund gifts so you can move forward to build strong, lasting relationships with these generous philanthropists!
— Charity Clairity
What has been your experience with acknowledging donor advised fund gifts? We’d love to hear from you.
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The post [ASK AN EXPERT] How To Enter And Credit Donor Advised Fund Gifts In Your Database appeared first on Bloomerang.