Donor Advised Funds & Event Tickets: What Every Philanthropist Needs to Know
As the seasons shift and communities gear up for a flurry of fundraising galas and charitable events, many of your philanthropy-minded clients will be looking to support their favorite causes. However, as they navigate these opportunities, it’s essential to be aware of a little-known wrinkle in the IRS rules that could catch them off guard.
A version of this scenario might sound familiar:
Client: “We were excited about buying a table at the fall gala through our donor advised fund, but the team at Greater Houston Community Foundation told us that’s not allowed. They suggested different ways to support the cause. What’s going on?”
You: “That’s a great question. The rules around donor advised funds and event tickets can be a bit convoluted.”
Navigating the complexities of the regulations while ensuring compliance can be challenging, demanding attention to detail and an understanding of both tax law and charitable giving practices.
Continue reading: What is a donor advised fund?
A Closer Look at IRS Regulations
The IRS has strict rules when it comes to donor advised funds (DAFs) and event tickets for charitable fundraisers. Specifically, they prohibit DAFs from covering any part of an event ticket, even if a segment of the ticket price is deemed tax-deductible.
The underlying principle is relatively straightforward: donors can no longer specify separate purposes for different parts of their gifts if it results in more than an incidental benefit for the donor. At a typical fundraising event, attendees receive meals, beverages, entertainment, and various giveaway items or swag. This effectively consolidates the gift into a single contribution, eliminating the bifurcation aspect.
IRS Notice 2017-73 brought this issue into sharper focus. The IRS highlighted the concept of “bifurcated gifts,” wherein part of a donation may be tax-deductible while another part is not. The IRS asserts under Internal Revenue Code Section 4967 that donor advised funds must not confer “more than incidental” benefits on the donor advised fund holders. Therefore, even when a donor pays out-of-pocket for non-deductible portions of an event ticket, the IRS maintains that grants enabling attendance or participation in charity-sponsored events provide more than incidental benefits.
This regulatory landscape has been on the radar of tax professionals since the 2017 Notice, with many observing that the IRS may update its regulatory stance in the future.
Continue reading: Understanding the Changes in Bifurcated Gifts
Navigating the Rules: What’s Next?
There’s a bright side.
Greater Houston Community Foundation is well-versed in these regulations and is committed to helping your clients navigate them effectively. In cases like this, we can assist your clients in structuring their gifts from donor advised funds in a way that remains compliant. For example, we can help them consider general event sponsorships, as long as they forego any associated benefits. Additionally, donors have the option to collaborate with the nonprofit to structure their sponsorships in a way that excludes benefits, ensuring that their contributions primarily support the organization’s mission.
Partnering with Greater Houston Community Foundation
In the evolving landscape of charitable giving, it’s essential to stay informed and compliant.
If you’d like to learn more about effectively giving under the updated IRS guidelines, or if you want to discuss your giving goals and charitable gift types, contact us today. As your trusted partner, the Foundation is here to support you and your clients every step of the way. Contact Kevin Pickett or Andrea Mayes to learn more about how we can help you achieve your philanthropic goals.
More Helpful Articles by Greater Houston Community Foundation:
- 3 Tips for Keeping Your Advisors in the Loop for Maximum Impact
- The Community Connector: Arcy Muñoz
- The Surprising Benefits of Philanthropy on Your Well-being
- Building Futures: Harris County’s Historic Investment in Early Childhood
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