Applying a Gift from a Donor Advised Fund to a Donor's Pledge

I came across this post and wondering if someone can tell me why a DAF can't pay on a pledge? What's legal reasoning? 

Hi Jennifer - the IRS rules for DAFs specifically state that they can't be used as payments on a legally binding pledge. I can't find the specific reference point in the Tax Code right now, my apologies. I have always assumed that it's because tangible benefits are often delivered on a pledge before the method of payment is known, and if any benefits have been received, a DAF distribution would have to be taxed. I'm not a tax advisor, though!

Hi Maery, 

The IRS made a ruling on this in December 2017, which clarified the position about a DAF's ability to fulfill an individual's pledge. They now can under most situations so long as no goods or services are received in exchange for the gift. This ruling didn't seem to get the attention in the nonprofit world it seemed it should have as this makes DAF gifts a lot less tricky to manage.    

Please see the official comment posted by the IRS:  https://www.irs.gov/pub/irs-drop/n-17-73.pdf (specifically pages 8 - 10).

As stated in the document: assume that charity Z, an organization described in §§ 501(c)(3) and 170(b)(1)(A)(vi), holds an annual fundraising drive, and in response to the annual fundraising solicitation, individual B promises to contribute $1,000x to Z. B has advisory privileges with respect to a DAF and advises that the sponsoring organization distribute $1,000x from the DAF to Z. The sponsoring organization makes the advised distribution. Assume further that in its transmittal letter to Z, the sponsoring organization identifies B as the individual who advised the distribution, but makes no reference to a charitable pledge by B or any other person. Z chooses to treat the sponsoring organization’s distribution as satisfying B’s pledge. Z also publicly recognizes B for B’s role in facilitating the distribution from the sponsoring organization, but Z provides no other benefit to B. B does not attempt to claim a § 170 deduction with respect to the distribution.

Under these facts, the Treasury Department and the IRS are currently of the view that the DAF distribution does not result in a more than incidental benefit to B under § 4967 merely because Z treats the distribution as satisfying B’s pledge.

Hi Debra - thank you for sharing this! I'm familiar with the Notice but in my experience, it's made DAF gifts harder to manage as donors often receive goods and services in return for their pledges long before payment is received.

I am curious why my title says California Academy of Sciences as I am from the Pittsburgh Symphony -- but I am also curious about the different in tax law eyes between Donor Advised Funds, Individual Foundations, Foundations managed by Individuals who are still living, Living Trusts of donors -- can any of them actually legally pay off pledges?  What makes a pledge "legally" binding?  When we pledge our info in Tessitura, does that make it legally binding or only if they have documentation via a pledge form that indicates that the pledge is binded by law?