The second largest charitable organization in the country in terms of annual money raised is not the Red Cross, the Salvation Army, or the YMCA— it’s Fidelity Investments. The sixth largest is Charles Schwab Corp. Vanguard Group Inc. is No. 10. Needless to say, Fidelity, Schwab, and Vanguard are not running hospitals or soup kitchens. Rather, they are the three largest sponsoring organizations of donor-advised funds (DAFs).
DAFs are accounts established by contributions from charitable donors to a sponsoring organization that pools and manages many different DAFs. The DAF then makes distributions to operating charities based on the advice of the donor. Because the sponsoring organizations are, by definition, described within section 170(c), contributions by a donor into a DAF are tax deductible. Importantly, the DAF need not make any distributions immediately for the original donor to receive the deduction. Because the donation is to the sponsoring organization itself, and the sponsoring organization is a charitable organization, the original gift is fully deductible.
150 Tax Notes 1013-1024 (2016)
Scholarly Commons Citation
Brooks, John R., "The Missing Tax Benefit of Donor-Advised Funds" (2016). Georgetown Law Faculty Publications and Other Works. Paper 1661.