Greetings from CFGC!

This week's topic is a technical look at IRS rules around using donor advised funds (DAF) to purchase tickets for a nonprofit's special event.  A DAF at CFGC is a great tool for donors to get a tax benefit now and grant over time, so we want to make sure everyone understands what donors can and cannot do with their DAF.

In addition, we also want to share the news that our software, designed specifically for community foundations, allows us to set up online ticket sales for special events.  We recently supported the Megan's Mission golf outing and the drawdown for the Pete Muffler Scholarship, a fundraiser organized by the Fraternal Order of Eagles #1024 and the Morris Lions Club by using this software to sell tickets, collect donations, and report back to the nonprofits.

Please note that this service is only available to Grundy nonprofits who have funds with us, and we are happy to talk with any nonprofit about how they can set up an endowment with us to create a consistent flow of income for years to come.

Deciphering IRS rules can be daunting, but we are doing our best to help you and your clients understand them!

Julianne Buck, CAP®

Executive Director

Event tickets: Beware of the split

Many of your philanthropy-minded clients certainly enjoy attending fundraising events for their favorite charities. Especially as community events start ramping up this fall, you’ll want to be aware of a little wrinkle in the IRS rules that may surprise your clients so much that they ask you about it.

Here’s how this might go:

Client: “We wanted to buy a table at the fall gala through our donor-advised fund, but the team at the community foundation said that’s not possible and they suggested alternate ways of meeting our goals. What’s up with that?”

You: “Ummmm ….”

And no one could blame you for that response! The rules behind this are obscure and confusing, even by IRS standards.

Here’s what’s going on: The IRS frowns on donor-advised funds paying for any part of an event ticket to a charitable fundraiser–even if a portion of the ticket is tax-deductible.

Big picture, the IRS does not allow for a tax deduction if the donor/taxpayer is seen as receiving some form of benefit in return.  At a typical event, of course, your client receives food, drinks, entertainment, and, in some circumstances, even advertising or products like t-shirts and other fund swag, all of which signal to the IRS that some benefit is being transferred back to the donor/taxpayer from the charity.

The IRS’s commentary on this topic is not new; IRS Notice 2017-73 addresses a concept known as “bifurcated gifts,” meaning a portion of a gift is tax deductible and the other is not. The background here is that the IRS has taken the position that Internal Revenue Code Section 4967 prohibits donor-advised grants from conferring “more than incidental” benefits to donor-advised fund holders. In its 2017 Notice, the IRS expresses its opinion that donor-advised fund grants that enable attendance or participation in a charity-sponsored event (such as buying tickets or a table) do indeed provide more than just an incidental benefit, even if the taxpayer pays out-of-pocket for the non-deductible portion of the ticket.

Ever since the notice was released, it’s been on the radar of tax professionals, and many predict that the IRS will eventually formalize its opinion by issuing new regulations. It’s wise to keep an eye on this because the penalties certainly are not negligible and include excise taxes imposed on the donor advisor and potential penalties for donor-advised fund programs that knowingly authorize such payments.

There is good news, though!

The team at the community foundation is on it! We understand the rules inside and out, and we are here to help your clients stay tax compliant and achieve their charitable goals.  In situations like this, we can help your clients structure gifts from donor advised funds to support fundraising efforts without the donor receiving benefits (i.e. event tickets, etc.).  We may recommend that the client pay for event tickets from their checking account and use their DAF to give separate and additional amounts for general support unrelated to the specific fundraising event.  We can also talk with your client about how to participate in rallies for outright donations during a fundraising event and ensure that the client is not breaking any IRS rules by accidentally receiving a benefit in return.

Please reach out anytime! We’re happy to help!