A LA Times Op-Ed on Donor-Advised Funds, by Jack Shakely
When I first starting working in the nonprofit world, despite having considered myself knowledgeable of the space, I had never heard of donor-advised funds, or what we call “DAFs.” I am happy to see that more articles are being written about this type of charitable giving, allowing DAFs and DAGs (Donor-Advised Gifts) to gain well-deserved notoriety. DAFs and DAGs provide a great platform for corporations and corporate foundations to fulfill domestic or global charitable objectives and to provide fringe benefits to local or worldwide employees without the additional administrative burden of operating a public charity of private foundation. DAF grantmakers, such as CAF America or Silicon Valley Community Foundation, usually specialize in either domestic or international grantmaking, but it is not unheard of organizations providing both services.
In a nutshell, DAFs allow US donors to give to domestic and foreign charities (non-501(c)3 organizations) while receiving maximum deductions because the 501(c)3 holding the DAF assumes the intricate reporting requirements necessary to be compliant with IRS restrictions.
A few things to consider when reading the article:
A donor-advised fund offered the wannabe philanthropist the same tax deductions as a foundation but without the red tape and with maximum donor control.
A key differentiation between a foundation and a DAF is grantor control. The grants made into the DAF are classified as a donation to the 501(c)3 supporting organization that manages the DAF. It mentioned in the article that “Mark Zuckerberg [gets] a tax deduction immediately.” Why? Because Mr. Zuckerberg donated money to a 501(c)3 charitable organization (Silicon Valley Community Foundation). Silicon Valley Community Foundation now manages and controls all of the funds donated. These donations into the DAF are under complete control of the 501(c)3 supporting organization; any grants made by the DAF are mere suggestions. Yes, the donor can recommend that those DAF funds be granted to any number of organizations, but the donor does not have complete control.
Donor-advised funds put a thumb on the scale of the always precarious balance of power between grant seeker and donor. They don’t publish mission statements or set up application procedures, which leaves nonprofits and individuals no easy way to target funding sources or make their appeal.
The author of the article states that one downfall of a DAF is that this type of set-up makes solicitation of funds more difficult for the nonprofits or individuals; however, most corporations or corporate foundations encourage grantseekers and willingly administer standard applications for inquiring nonprofits. Despite the fact that DAFs relieve some of the administrative burden associated with domestic and international grantmaking, these corporations and corporate foundations are sophisticated operations that actively seek new charities to achieve their CSR missions.
Shakely, Jack. “A Philanthropic Revolution.” Los Angeles Times. Los Angeles Times, 13 Mar. 2014. Web. 18 Mar. 2014.