You may recommend grants to charities in support of their events, but here are a
few things to keep in mind: When DAFs pay even the deductible amount of an event
expense or membership—and the DAF grant enables donors, donor advisors, or
certain related persons to participate, the IRS takes the position that the donor
advisor or participant owes a 125% excise tax and that DAF organization managers
may also owe a tax. Therefore, The Signatry makes membership and event grants
only when donors, donor advisors, and certain related persons will not benefit from
the membership, participate in the event, or choose who will participate in their
stead.
Following is the specific IRS language from Notice 2017-73:
[P]roposed regulations under § 4967 would, if finalized, provide, that a distribution
from a DAF pursuant to the advice of a Donor/Advisor that subsidizes the
Donor/Advisor's attendance or participation in a charity-sponsored event confers
on the Donor/Advisor a more than incidental benefit under § 4967... A
Donor/Advisor who wishes to receive goods or services (such as tickets to an
event) offered by a charity in exchange for a contribution of a specified amount
can make the contribution directly, without the involvement of a DAF.
The Treasury Department and the IRS recognize that a similar issue arises if a
sponsoring organization makes a distribution from a DAF to a charity to pay, on
behalf of a Donor/Advisor, the deductible portion of a membership fee charged by
the charity, and the Donor/Advisor separately pays the nondeductible portion of
the membership fee. Therefore, The Treasury Department and the IRS anticipate
that the same analysis would apply to a case where the Donor/Advisor receives
these types of membership benefits, so that the sponsoring organization cannot
pay the deductible portion of the membership fee without conferring more than an
incidental benefit on the Donor/Advisor.
Example 1:
You would like to sponsor the table so you and others can attend a charity event, and
the fee for this sponsorship level is $5,000. None of the $5,000 sponsorship may be
paid as a grant from a DAF. The entire $5,000 should be paid personally if you wish
to sponsor the event. This is true even though the value of the table for 10 (quid pro
quo benefit) is only $200. No portion of the $5,000 may be paid as a grant from a
DAF if there is any benefit connected with the level of sponsorship.
Frequently Asked Questions
Example 2:
The same scenario as Example 1, except that you do not personally attend the event; however, the sponsorship gives you the opportunity to invite others to attend.
The fees must be paid personally and not granted from a DAF.
Example 3:
You would like your DAF to sponsor an event, you do not attend the event, you are not given the opportunity to invite guests, and you do not receive any other benefit related to the sponsorship. This type of sponsorship grant can be made from a DAF. Your name, logo, address, and contact information may be included in event materials recognizing the sponsorship. The IRS does not treat simple sponsorship recognition as a benefit.
Example 4:
The same scenario as Example 3, except that you advertise and/or promote your
company in the sponsorship recognition materials (i.e., using comparative or value
language). The sponsorship must be made personally and may not be granted from
a DAF. The IRS considers advertising and promotion to confer a benefit on the
sponsor.
Examples of specific event-related expenses that are not eligible for granting:
• Attendance or participation (for yourself or someone you choose)
• Meals (for yourself or someone you choose)
• Golf expenses (for yourself or someone you choose)
• Paying for items won at a charity auction
• Advertising
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