FAQ: End of Year 2024
- Individual Retirement Accounts (IRA) Gifts and Qualified Charitable Distributions (QCDs)
- May a donor make a QCD from an IRA to their donor-advised fund (DAF) or someone else’s DAF?
- What happens if a donor chooses to transfer money from their IRA into a DAF? Do we have to tell them they have to designate a different fund as the recipient?
- May a donor make a qualified charitable distribution (QCD) from an inherited IRA to their donor-advised fund (DAF)?
- May a donor make a qualified charitable distribution (QCD) from an IRA to a designated fund or a field of interest fund?
- Gift Acknowledgements
- A donor made a gift of stock at the end of the year, but our community foundation did not receive it until after the first of the year. May we back-date our gift acknowledgement letter?
- A donor who contributed publicly traded stock wants to know why the gift acknowledgement doesn’t state a dollar value for their gift. Why shouldn’t we include this information in the letter we send to them?
- A corporation established a DAF and encourages its employees to contribute using payroll deductions. If the company sends us a file with the name of the employees and payroll deduction amounts, can we issue a tax letter to each of the employees or should we instead issue the tax receipt to the company since it is the one sending the check?
Individual Retirement Accounts (IRA) Gifts and Qualified Charitable Distributions (QCDs)
May a donor make a QCD from an IRA to their donor-advised fund (DAF) or someone else’s DAF?
No, a QCD is not available for distributions from an IRA to any DAF. QCDs are excludable from a donor’s income as long as they are paid directly from the IRA to an eligible charitable organization. Each year, IRA owners age 70 ½ or older may use QCDs to transfer an amount up to the annual limit ($105,000 for 2024 and $108,000 for 2025) without having to report it in their gross income. Section 408(d)(8) of the Tax Code makes clear QCDs may not be made to DAFs, regardless of whether the DAF was established by the IRA owner or someone else. In addition to DAFs, section 408(d)(8) also prohibits QCDs from being made to 509(a)(3) supporting organizations.
What happens if a donor chooses to transfer money from their IRA into a DAF? Do we have to tell them they have to designate a different fund as the recipient?
Although DAFs are ineligible recipients of QCDs, that doesn’t mean that a donor is prohibited from transferring any IRA assets into a DAF. Such a transfer will not qualify for treatment as a QCD, meaning that the amount distributed to the DAF can’t be excluded from the donor’s taxable income. The donor would have to report the full amount distributed to the DAF as income but could then potentially claim a tax deduction just like they could with any cash contribution. A QCD is more tax efficient because it allows the donor to avoid recognizing income in the first place, but if a donor isn’t concerned about the more favorable tax benefits of a QCD then there’s no reason they can’t make a non-QCD transfer from their IRA to a DAF.
Community foundations should consider adopting separate gift acknowledgement templates for IRA gifts made to DAFs, with language making clear that because the donor has instructed the foundation to place the distribution in a DAF it cannot qualify for treatment as a QCD under IRC section 408(d)(8) but that it qualifies for a charitable tax deduction as a cash contribution.
May a donor make a qualified charitable distribution (QCD) from an inherited IRA to their donor-advised fund (DAF)?
No, a contribution from an IRA to a DAF can never qualify for treatment as a QCD, regardless of whether the IRA was established by the donor or inherited from someone else. If the individual who inherited the IRA is younger than 70 ½, they are not eligible to make QCDs from this account anyway. If the donor is older than 70 ½, then they will need to decide whether they prefer the more tax efficient option of making a QCD (in which case the money could not go to a DAF) or if they prefer to contribute to a DAF (in which case the distribution cannot be treated as a QCD).
May a donor make a qualified charitable distribution (QCD) from an IRA to a designated fund or a field of interest fund?
A donor may make a QCD to a designated fund, field of interest fund, or any other fund type held by a community foundation as long as the fund does not meet the definition of a DAF. A DAF is a fund which is held by a sponsoring organization and separately identified by reference to the donor, over which the donor or donor-appointee retains advisory privileges with respect to the distribution and investment of assets in the account.
Gift Acknowledgements
A donor made a gift of stock at the end of the year, but our community foundation did not receive it until after the first of the year. May we back-date our gift acknowledgement letter?
You should acknowledge the gift for the exact date when you received ownership. If you don’t have any direct knowledge of when the donor initiated the transfer, then it would be improper to acknowledge receipt of the gift before you have ownership. If the donor had placed physical stock certificates in the mail, then the donor could claim the gift was effective the date that it was placed in the mail—if the donor has proof of the mailing date. But electronic transfers are deemed effective upon receipt.
A donor who contributed publicly traded stock wants to know why the gift acknowledgement doesn’t state a dollar value for their gift. Why shouldn’t we include this information in the letter we send to them?
IRS Publication 1771, concerning substantiation of charitable contributions, provides that written acknowledgements of non-cash contributions should include a description of the gift but not a value.
The fact of the matter is that it is ultimately the donor’s responsibility to determine the value of a charitable contribution for tax purposes. Charities should not engage in the practice of assigning a value to non-cash gifts as this could be construed as providing tax advice to the donor. It is acceptable to include information that can help the donor determine the value of the contribution, such as the high, low, and average stock price on the date of the gift, but you should avoid making statements that could give the donor the impression that you are assigning the gift a value for tax purposes.
A corporation established a DAF and encourages its employees to contribute using payroll deductions. If the company sends us a file with the name of the employees and payroll deduction amounts, can we issue a tax letter to each of the employees or should we instead issue the tax receipt to the company since it is the one sending the check?
Since these contributions would be made by the individual employees and the company would merely be deducting the contributions from their paychecks for convenience, it would be appropriate to issue a receipt to the employees. The IRS guidance on substantiation of charitable contributions made via payroll deductions states:
For charitable contributions made by payroll deduction, the donor may use a pledge card prepared by or at the direction of the charitable organization, along with one of the following documents:
- a pay stub,
- Form W-2, Wage and Tax Statement, or
- other employer-furnished document that shows the amount withheld and paid to a charitable organization.
If a donor makes a single contribution of $250 or more by payroll deduction, the pledge card or other document from the organization must also include a statement to the effect that the organization does not provide goods or services in whole or partial consideration for any contributions made to the organization by payroll deduction.
Each payroll deduction amount of $250 or more is treated as a separate contribution for purposes of the $250 threshold requirement for written acknowledgments.
That means if the company is able to provide you with a list of employees and the respective amounts they contributed, you could issue letters to each employee that would satisfy these substantiation requirements
