Nonprofit pass-through donations route your gift through a tax-exempt intermediary so you can claim a charitable deduction in the year you give, even when the money ultimately supports a project or recipient that doesn’t hold its own 501(c)(3) status. Cash gifts to a qualifying public charity intermediary are deductible up to 60% of your adjusted gross income; appreciated property is capped at 30%. The two structures that dominate this space are donor advised funds and fiscal sponsorships, and the deduction holds only if you avoid a handful of traps that can erase it entirely.
The Two Intermediaries You’re Likely Using
A donor advised fund is a separately identified account held and controlled by a sponsoring public charity. You contribute cash or other assets irrevocably to the sponsor, take the deduction that year, and recommend grants from the account over time.1Internal Revenue Service. Donor-Advised Funds The word is “recommend.” Once the money hits the DAF, the sponsor owns it, and the sponsor can reject a grant recommendation that doesn’t serve a charitable purpose.2Office of the Law Revision Counsel. 26 US Code 4966 – Taxes on Taxable Distributions – Section: (d) Definitions There is no federal deadline by which a DAF must distribute its balance.
Fiscal sponsorship is a formal arrangement in which a 501(c)(3) organization lends its tax-exempt status to a project that doesn’t have its own. The sponsor accepts donations on the project’s behalf, giving you a deductible contribution while the project operates under the sponsor’s legal umbrella. New nonprofits waiting on their IRS determination letter, grassroots initiatives, and internationally focused projects commonly use fiscal sponsorship. The sponsor charges an administrative fee, typically 5% to 10% of funds managed, and the written agreement sets out how the money will be used.
In both cases, you are giving to the intermediary, not to the end project. That legal reality is what makes the deduction work, and it is also what creates the risks that follow.
When the Deduction Lands and How Much You Can Take
The deduction is pegged to the date you transfer money or property to the intermediary, not the date the intermediary passes it on. Contribute to a DAF in December and the deduction is yours for that tax year even if grants aren’t recommended until the next summer.
Cash contributions to a public charity (including DAF sponsors and fiscal sponsors) are deductible up to 60% of your adjusted gross income. The 60% cap, originally part of the 2017 Tax Cuts and Jobs Act, was made permanent by subsequent legislation.3Office of the Law Revision Counsel. 26 USC 170 Charitable Etc Contributions and Gifts Appreciated capital gain property, such as stock held longer than one year, is capped at 30% of AGI.4Office of the Law Revision Counsel. 26 US Code 170 – Charitable Etc Contributions and Gifts
Donating appreciated stock is one of the most tax-efficient ways to fund a pass-through gift. You deduct the full fair market value of the shares without recognizing any capital gain, and the intermediary can sell the stock tax-free and deploy the cash.
Contributions above the AGI cap in a given year aren’t lost. The excess carries forward for up to five additional tax years.5Internal Revenue Service. Publication 526 – Charitable Contributions
Paperwork That Protects the Deduction
For any single contribution of $250 or more, you need a written acknowledgment from the intermediary before claiming the deduction. The acknowledgment must state the amount of cash contributed (or describe, but not value, any non-cash property) and whether the organization provided any goods or services in return.6Internal Revenue Service. Charitable Contributions Written Acknowledgments You are responsible for obtaining this documentation, and the IRS will not accept a bank statement in its place.7Internal Revenue Service. IRS Publication 1771 – Charitable Contributions Substantiation and Disclosure Requirements
Property gifts carry more paperwork. When total non-cash contributions exceed $500, you must file IRS Form 8283 with your return. A single item or group of similar items worth more than $5,000 requires a qualified appraisal by an independent appraiser, who signs Section B of Form 8283.8Internal Revenue Service. Instructions for Form 8283 – Noncash Charitable Contributions The appraisal must be completed no earlier than 60 days before the donation and received before the filing deadline for the return claiming the deduction.
The intermediary has a reporting duty tied to your gift. If it sells or disposes of property you reported on Form 8283 within three years of receiving it, the organization must file Form 8282 with the IRS and send you a copy.9Internal Revenue Service. About Form 8282 Donee Information Return
The Earmarking Trap
This is where pass-through giving most often goes wrong. The IRS draws a sharp line between contributing to a qualified organization for its charitable programs and earmarking a donation for a specific individual or non-qualifying recipient. Cross that line and the deduction disappears entirely.
A donation earmarked for a particular person’s benefit isn’t deductible, even when the check is written to a 501(c)(3). Contributing to a hospital for a specific patient’s care, sending money to a charity designated for one family’s flood relief, or funding a specific child’s expenses at a charitable institution all fail the test.5Internal Revenue Service. Publication 526 – Charitable Contributions
International giving faces similar scrutiny. A contribution earmarked to go to a foreign organization is not deductible. A contribution to a domestic charity for use in a program the charity operates through a foreign partner can be deductible, so long as the domestic charity approved the program as furthering its own exempt purposes and keeps control over how the funds are used.5Internal Revenue Service. Publication 526 – Charitable Contributions The domestic charity must be more than a mailbox. It needs to exercise genuine discretion over the funds.
DAF-Specific Risks to Know Before You Fund One
DAF sponsors face stiff penalties for distributing funds to the wrong recipients, and those penalties shape what the sponsor will let you recommend. A taxable distribution from a donor advised fund triggers a 20% excise tax on the sponsoring organization plus a separate 5% tax on any fund manager who knowingly approved it, capped at $10,000 per distribution for the manager.10Office of the Law Revision Counsel. 26 US Code 4966 – Taxes on Taxable Distributions
A distribution counts as taxable if it goes to any individual, or to any non-charitable entity unless the sponsor exercises expenditure responsibility over the grant. Distributions to organizations recognized under IRC 170(b)(1)(A) (most public charities), to the sponsoring organization itself, or to another donor advised fund are exempt from the tax.10Office of the Law Revision Counsel. 26 US Code 4966 – Taxes on Taxable Distributions That penalty structure is why most DAF sponsors will only grant to recognized public charities, and why requests to grant to individuals or to a startup project without 501(c)(3) status are usually declined.
The IRS has also flagged DAF arrangements designed to give donors impermissible economic benefits, such as tax-sheltered investment income or backdoor payments to the donor’s family, as abusive. If a sponsor lets a donor treat a DAF like a personal checking account, both the sponsor and the donor can be exposed.
Succession matters too. When a DAF account holder dies, the account doesn’t vanish, but what happens next depends on whether you named successor advisors (often a spouse or adult children) or designated charities to receive the balance as final grants. With no plan on file, the sponsor typically closes the account and distributes the assets based on the account’s granting history or to the sponsor’s own philanthropic fund.
What Your Intermediary Owes You and the IRS
You don’t file the intermediary’s returns, but it helps to know what your gift triggers on their side, because gaps there can later touch you. Every 501(c)(3), including fiscal sponsors and DAF sponsors, must ensure its assets are used exclusively for charitable purposes. A fiscal sponsor making grants to a non-exempt project is expected to vet the recipient, restrict grants to approved charitable activities, collect reports on how the money was spent, and review financials against the approved budget.
DAF sponsors operate under a hybrid obligation. Under IRC 4966, a DAF distribution to a non-charity is taxable unless the sponsor exercises expenditure responsibility as described in IRC 4945(h).10Office of the Law Revision Counsel. 26 US Code 4966 – Taxes on Taxable Distributions The 4945(h) framework requires a pre-grant investigation of the recipient, a written agreement restricting the funds to specific charitable purposes, a prohibition on using the funds for lobbying or political campaigns, and periodic expenditure reports from the grantee.11Internal Revenue Service. IRC Section 4945(h) – Expenditure Responsibility
Every intermediary, public charity or private foundation, must also screen grant recipients against the Specially Designated Nationals and Blocked Persons list maintained by the Treasury Department’s Office of Foreign Assets Control. Executive Order 13224 prohibits any transaction or contribution of funds to or for the benefit of individuals or entities designated as global terrorists.12U.S. Department of State. Executive Order 13224 Grants made without that check can lead to loss of exempt status or criminal prosecution.
Organizations that distribute more than $5,000 in total grants during a tax year report those grants on Schedule I of Form 990, including the recipient’s legal name, address, EIN, dollar amount, any non-cash assistance, and the grant’s purpose.13Internal Revenue Service. Instructions for Schedule I Form 990 Schedule I is public. If you want to see where a DAF sponsor or fiscal sponsor has actually sent money, that’s where to look before you fund them.