A donor advised fund (“DAF”) is an account into which donations are made and from which distributions are processed, where that account is maintained and operated by a 501(c)3 tax-exempt organization (the “sponsoring organization”). Each DAF account consists of contributions made by an individual donor who receives the tax benefits of each contribution at the time it is made. Once the donor makes the contribution, the sponsoring 501(c)3 organization has legal control over it. The donor retains advisory privileges with respect to the investment of assets in the account and the distribution of the funds to eligible recipient organizations. The term “donor advised fund” is often expressed “donor-advised fund”.
Upon an advisory request to distribute funds from a DAF account, the sponsoring organization is responsible for determining the eligibility of the recipient organization and then processing the distribution to an approved recipient. Typically the recipient will be a US-based, tax-exempt charity recognized under the IRS code. Increasingly, however, donors are making advisory requests to fund charities located overseas (typically referred to as NGO’s, or non-governmental organizations). NGOs can be eligible to receive a contribution from a DAF, provided that certain eligibility determination guidelines are followed.
When a distribution is made from a DAF to an eligible charity, there is no additional tax benefit to the original donor, because the donor has already received tax benefits for the original contribution and no longer legally possesses the funds. For this reason, some tax exempt organizations will not accept a contribution from a DAF when an individual donor is personally responsible to fulfill a written pledge.
The IRS provides helpful information regarding DAFs. For legal questions about a DAF or a contribution that a charity may have received, please consult appropriate legal counsel.