Donor Advised Fund Grant Frequently Asked Questions

A donor-advised fund, sometimes referred to as a “DAF,” is a charitable giving vehicle sponsored by a public charity, like the Alaska Community Foundation. 

Donors that contribute to a donor-advised fund are eligible for an immediate tax deduction, and then can recommend grants to IRS-qualified 501(c)(3) public charities at any time. Donors' contributions are invested before being granted out, and the growth is tax-free.

Most of our donor-advisors received their donor-advised fund through the Hilcorp Employee Giving Program. 

Otherwise, the donor-advisor may have opened the account because:

• They wish to take advantage of tax benefits by "bunching" their charitable donations to the fund in one year but granting out in future years.
• They wish to donate a hard-to-value asset, which most nonprofit organizations do not have the ability to accept.
• Assets in donor-advised funds are invested, and growth is tax-free, which ultimately increases the amount they can give over time to nonprofit organizations.
• Donor-advised funds support legacy planning and can engage multiple generations of family members in charitable giving.
• Donor-advised funds provide centralized, simplified record-keeping for all donations.

Usually, no. Most donor advisors make grants to organizations they already know and love. Some donor-advised funds accept applications. All open-application grant opportunities at ACF are listed on the Grant Opportunities page. 

The best way to seek donor-advised fund grants is to connect with and grow relationships with philanthropic individuals who own DAFs.

If a nonprofit has received a donor-advised fund grant already, they will increase their likelihood of receiving future grants by acknowledging the gift with a thank-you, inviting the donor-advisor to programming, and including the donor-advisor in fundraising campaigns. 

A personalized thank-you letter is an opportunity to cultivate a new relationship and share the work of your nonprofit with someone who has committed funds to your mission. You can acknowledge their generosity in much the same way you thank your other donors—with just a few differences.  

Your nonprofit finance team should credit the gift under the record of the sponsoring organization and soft credit the gift on the record of the individual who made the grant recommendation.  

Nonprofits should send a thank you directly to the donor, whose name and address will be listed in the grant letter accompanying the check. The grant you received was from the Alaska Community Foundation, but the reason you received it was because a donor recommended a grant to your organization. When listing contributors on your website and in your collateral, make sure to list the donor rather than the Alaska Community Foundation. While you are also welcome to list us, it is most important to acknowledge the donor advisor associated with the grant. 

If you have a template that you use to thank your donors, there’s an important change you’ll need to make for donors who use donor-advised funds. A donor who recommends a grant from a donor-advised fund is not eligible to claim a tax deduction in connection to the grant. That’s because donors are eligible to claim a charitable tax deduction when they make a contribution to a DAF- sponsoring organization, like the Alaska Community Foundation, not when their grant recommendations are distributed to nonprofits like yours.  

As you write the letter or email, note that you received the gift via a donor-advised fund. Make sure you remove any reference that suggests that the donor is eligible to claim a tax deduction in connection with the donation. Restating that the donation is not tax-deductible as well can help avoid confusion. It can be as simple as: “Remember, this is not a tax receipt. You may be eligible to claim a tax deduction for your contribution to the organization that sponsors your donor-advised fund.” 

Usually, donor-advised fund grants have no reporting requirement. If a donor-advised grant does require reporting, that will be explained in the grant letter that accompanies the check.

Of course, donor advisors always love hearing about the impact of their giving, even if there is no report required!

Grants from donor-advised funds may cover the cost of memberships if the nonprofit confirms that the full cost is 100% tax-deductible.

If the cost is not 100% tax-deductible, the donor must waive the more-than-incidental benefits related to the membership (even if another person receives those benefits).

Here are examples of incidental membership benefits that are permissible in exchange for donor-advised fund grants:

• Inclusion on an email list or access to a members-only discussion forum
• Preferred access to special ticketed events where donor pays for tickets separately
• Invitations to members-only exhibits
• Low-cost items, such as a newsletter, calendar, key chain or coffee mug

The lowest ticket price (both the tax-deductible and non-tax-deductible portion) must be paid from a donor’s personal bank account. Remaining sponsorship costs may be by a grant from a donor-advised fund, as long as the donor does not receive more than an incidental benefit in return. Logo or name recognition in event materials is not considered more than an incidental benefit.

For example, imagine a $3,000 event sponsorship that includes a table for 8 and your logo in event materials. If the lowest individual ticket price to attend the event is $50, the donor will need to pay $400 from their personal bank account ($50*8 seats at the table). They can then use their donor-advised fund to cover the remaining $2,600. 

If a donor chooses not to accept any benefits associated with a sponsorship, the entire amount may be paid by a grant from a donor-advised fund.

No. Raffle tickets and auction items cannot be paid by grants from donor-advised funds, because the donor cannot receive any personal benefits.

No. A grant from a donor-advised fund may fulfill a commitment to a 501(c)(3) public charity. However, Treasury and the IRS prohibit using the term “pledge” on grant checks or related correspondence. Instead, the donor should reference a “donation” or “gift.”

Yes, so long as it has a valid EIN (Employer Identification Number) with the federal government.

Churches (including integrated auxiliaries and conventions or associations of churches) that meet the requirements of section 501(c)(3) of the Internal Revenue Code are automatically considered tax exempt and are not required to apply for and obtain recognition of exempt status from the IRS to be eligible to receive grants from donor-advised funds.

Nevertheless, many churches do seek IRS recognition of tax-exempt status because that recognition provides reliance to church leaders, members and contributors that the church is recognized as exempt from taxation and is eligible to receive tax-deductible contributions. (For more information, see Publication 1828, Tax Guide for Churches and Religious Organizations)

No. Donor-advised funds may not make grants to individuals either directly or indirectly or to a charitable entity for the benefit of a specified individual. Examples of what is not allowed include named scholarships, tuition or books for an individual student, or registration fees for sports teams.

Further, donors, advisors or related parties are prohibited from receiving grants, loans, compensation or similar payments (including expense reimbursements) from donor-advised funds.

Donors may make grants "in honor of" a specific individual through their donor-advised fund.

Yes, a donor may make donor-advised grants to organizations in which they, their spouse, or family members participate in a volunteer or board capacity, so long as they do not receive any personal benefit from the grant.