Isaac,
IRC Sec 4967(a)(1) addresses this stating:
(a)Imposition of taxes
(1)On the donor, donor advisor, or related person
There is hereby imposed on the advice of any person described in subsection (d) to have a sponsoring organization make a distribution from a donor advised fund which results in such person or any other person described in subsection (d) receiving, directly or indirectly, a more than incidental benefit as a result of such distribution, a tax equal to 125 percent of such benefit. The tax imposed by this paragraph shall be paid by any person described in subsection (d) who advises as to the distribution or who receives such a benefit as a result of the distribution.
How I interpret this is that the IRS is imposing a penalty for those who advise a distribution from their DAF whereby they receive more than an incidental benefit as a result of such a distribution. When the $12,500 distribution from the DAF assists in them in reaching the $25,000 level necessary to qualify for the benefit (10 tickets worth $1000), how does that not fulfill a violation of this Section for which the IRS is sanctioning a penalty?
Secondly, the Fidelity site your provided states, "...grants intended to pay any portion of the cost of attendance to a charitable event(s) cannot be made from your Giving Account. This includes bifurcated or "split gifts* where a donor pays for the non-tax-deductible portion of the admission fee out of pocket, and then recommends the tax-deductible portion from their Giving Account."
How does Ashley's approach comply with the statute or mirror Fidelity's guidelines? It seems like it's simply a gaming of their rules in attempt to circumvent the intent of the statute, and actually falls right into the hands of what Fidelity says they will not allow. Even if the donor claims the grant was not for the portion which provided the benefit, it still helped them qualify to reach the level which gave them the benefit and that is the impermissible action behind the intent of both the statute and the guidelines.
To me, it just seems as though UTA is gaming the rules to say, "Let's pretend the donor can attend the event and get 10 tickets (FMV $1,000) just by donating $12,500 out of their own money
even if we never receive the $12,500 grant from their DAF." I believe if that were true, then everyone would be OK with it because that's how it's
actually supposed to work -- donor pays for admittance out of their own funds, and does not rely on funds which belong to the DAF.
But the only way I could see this passing muster with the IRS is if UTA actually allowed OTHER donors to get 10 tickets for $12,500 (from their own funds) and not a penny more.
------------------------------
Eric Valdescaro
Senior Director, Advancement Services
University of Memphis
eric.valdescaro@memphis.edu------------------------------
Original Message:
Sent: 08-02-2022 02:52 PM
From: Isaac Shalev
Subject: Gala table sponsorship via DAF (bifurcation clarification)
John, I believe Ashley's revised approach complies with the IRS rules, and mirrors Fidelity's guidance, too, per
https://www.fidelitycharitable.org/faqs/all/grant-gala-event.html
The key, as you say, is that individuals are not receiving benefits for less than the established payment levels. In Ashley's latest examples, the individuals are paying the standard ticket price that any donor would pay to attend. They are not paying a discounted price, nor are they paying only the noncharitable portion. They're paying for a full ticket.
Thank you,
Isaac Shalev
Data Strategy Expert
Sage70, Inc.
(917) 859-0151
isaac@sage70.com
Schedule a 30-minute consultation now:
Original Message:
Sent: 8/2/2022 2:02:00 PM
From: John H. Taylor
Subject: RE: Gala table sponsorship via DAF (bifurcation clarification)
Unfortunately, you cannot use DAF funds in either scenario. Doing so would fall under the IRS bifurcation prohibition. No DAF payments can be accepted that would allow individuals to receive benefits at lower than established payment levels.
John
John H. Taylor
Principal
John H. Taylor Consulting, LLC
2604 Sevier St.
Durham, NC 27705
919.816.5903 (cell/text)
Serving the Advancement Community Since 1987
Original Message:
Sent: 8/2/2022 12:20:00 PM
From: Ashley Ojeda
Subject: RE: Gala table sponsorship via DAF (bifurcation clarification)
Thank you so much for your help understanding this. I was able to get some additional clarification from the department and based on their information I believe I am able to offer this guidance to stay on the right side of the IRS rules.
I learned that the full ticket price is $1,250 each with a QPQ of $100/ticket (my organization calls it a 'benefit amount')
A table sponsorship is $25,000 and includes 10 tickets to the gala with a QPQ of $100/ticket. Under a standard donor contribution it comes out to a $24,000 charitable contribution with a $1,000 QPQ.
-----
So in order for a DAF to be used for a $25,000 table sponsorship, I would advise:
- Donor self-pays $12,500 (10 tickets x $1,250). They'd get a receipt with a QPQ of $1,000 ( $100/ticket benefit amount)
- DAF can then issue a grant of $12,500
Some donors are splitting a $25,000 table sponsorship between 5 individuals. In this case, it would be:
- Donor self-pays $ 2,500 (2 tickets x $1,250). They'd get a receipt with a QPQ of $200.00
- DAF can then issue a grant of $2,500
Again, I really appreciate your help with understanding this!!
------------------------------
Ashley Ojeda
Assistant Director for Development
University of Texas at Austin
ashley.ojeda@austin.utexas.edu
Original Message:
Sent: 07-29-2022 12:14 PM
From: Isaac Shalev
Subject: Gala table sponsorship via DAF (bifurcation clarification)
Hi Ashley,
1 - Yes, the IRS rules apply, regardless of whether you can buy tickets separately or not, because the rules prohibit payment for a benefit. However, as you'll see later on, the fact that tickets are available without a sponsorship will help in dealing with this.
2 - Yes, the donor may decline the benefit, at the time of purchase, and receive full credit for their gift. There's no problem with a DAF grant being used for such a purpose.
3 - Different folks will have different approaches to this. At one extreme, the donor's grant recommendation itself was problematic - they failed to properly disclose that this grant was purchasing tickets in a manner not allowed by the IRS or the DAF sponsor - and thus the whole transaction is void. The donor's tickets are invalid, and the whole transaction should be reversed. At the other end of the spectrum, the charity takes the position that it got a DAF grant for $5k, it's accepting that grant, and declining to provide benefits, per the law, and per the DAF grant letter itself, which typically indicates these terms. The issuing of the tickets to the donor is viewed as the mistake, and those tickets are voided. The donor is totally uninvolved, as the transaction is between a DAF and a nonprofit, formally speaking.
Assuming that by "benefit amount" you mean the nondeductible portion of the ticket, the compliant way to do this is as follows:
The donor must pay for the two tickets at the normal ticket price. You didn't mention the standalone ticket price, so let's say it's $500/ticket. The donor must pay $1k (two tickets), and receives a QPQ receipt for $800 in charitable contributions and $200 in benefits received. The DAF can now pay the $4,000 difference in table sponsorship, to come up to the $5k. This is not bifurcation. Bifurcation would be if the donor paid $200, covering only the noncharitable benefit, and the DAF paid $4,800.
Thank you,
Isaac Shalev
Data Strategy Expert
Sage70, Inc.
(917) 859-0151
isaac@sage70.com
Schedule a 30-minute consultation now:
Original Message:
Sent: 7/29/2022 12:36:00 PM
From: Ashley Ojeda
Subject: Gala table sponsorship via DAF (bifurcation clarification)
Hello,
We have a department that is hosting a gala, and it appears that the organizers told table sponsors that they could bifurcate the benefit amount and charitable amount between their DAFs and a personal check. We know that this is not allowed, however my office was notified by the organizer after we started receiving DAF grants. I want to make sure I have a firm understanding of this policy so that the gala organizer knows how to communicate this issue to their donors. This is a $5,000 table sponsorship that includes two tickets to the event that have a benefit amount of $100 each. Attendance to the gala does not require a table sponsorship and the tickets are not discounted based on if they are part of a table sponsorship.
A resource that was shared in some earlier AASP community posts, states the following:
"A grant from a DAF is not permitted to confer benefits for items such as raffle tickets, tickets to galas and other special events, and auction items Preferential seating or parking at athletic events generally cannot be given. IRS has specifically ruled that any category of costs associated with fundraising events cannot be separated, a practice known as "bifurcation." For example, if the ticket breaks out the cost for the dinner and the gift to the charity, the donor must pay for the full value of the ticket from sources other than her DAF and not just for the noncharitable amount."
My questions are:
Since the tickets are separate from the table sponsorship does this IRS rule apply?
Can the donor waive the tickets (i.e. benefit amount) and stay in compliance with the IRS policy?
Can the donor donate the tickets? If so, I'm assuming they can't have any say in the selection of ticket recipients.
I would appreciate any help this group could provide.
Thank you,
Ashley
------------------------------
Ashley Ojeda
Assistant Director for Development
University of Texas at Austin
ashley.ojeda@austin.utexas.edu
------------------------------