There is generally not a problem with a DAF giving a $25k gift and the donor-adviser participating in an auction and making a $5k QPQ gift, so long as the $25k gift did not put the donor in position to participate in the auction, nor did the DAF gift provide any other benefit to the donor, whether exercised or not.
What is always forbidden is using a DAF to pay for an auction item. That's plainly conversion of charitable assets by a private individual, ie private inurement. In this case it's also self-dealing. But assuming that DAF donation did not in any way position the donor to participate in the auction, the only possible way to see this is as you described. The $30k paid WAS all for a donation. The donor-adviser might have made a mistake, and thought that the auction payment could be paid for by DAF. Or they might have wrongfully intended for the DAF to cover a payment they knew it ought not covered. They may have made an honest mistake when they recommended the gfit and disclaimed any private benefit as part of the recommendation process, or they might have lied. Either way, it doesn't really matter. The donation is from the DAF to the Foundation. The DAF gift is expressly not contingent on the validity of the recommendation, because the recommendation is purely advisory.The obligation to prevent private inurement falls on the DAF itself and the recipient charity, and that obligation has been properly discharged. You caught it. You're not going to allow the DAF funds to be applied to the donor's outstanding auction balance.
The outcome then, is that a $30k donation was made from the DAF to the Foundation. That gift is no-strings-attached. Separately, the donor incurred a $5k auction debt to the Foundation. The donor's expectations or desire for the DAF gift to cover his debt does not, by itself, create bifurcation. When he is told that it cannot, and he agrees to pay $5k from his own pocket, everyone is square. The donor received no disallowed benefits from the DAF. If anything, the greater problem would be if the donor wanted the DAF gift to be refunded by $5k, claiming that the $5k was "for the auction."
Again, all this assumes that the DAF donation did not provide any benefit to the donor of any kind, including benefits granted but not exercised. That's what bifurcation rules are all about - preventing the donor from receiving benefits stemming from the DAF's donation. If there are no such benefits, it doesn't matter that both DAF and donor made gifts.
Thank you,
Isaac Shalev
Data Strategy Expert
Sage70, Inc.
(917) 859-0151
isaac@sage70.com
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Original Message:
Sent: 3/22/2024 12:12:00 PM
From: Dena Toth
Subject: DAF and Bifurcation Rules
I'm trying to get some additional clarification on DAF and Bifurcation rules. If donor gives 30K from DAF, 5K of which was for auction item and 25K was 100% donation, can they turn the full 30K into a full charitable donation and pay the 5K separately for the auction purchase. The donors did not attend the event (auction was online) so no tickets were required to be purchased. Since no tickets were required to attend the event, would that make it OK to turn the 30K to full charitable donation and donor would pay separately for the online auction item?
Thank you,
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Dena Toth
Medical University of South Carolina Foundation
tothd@musc.edu
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