Thank-You Letters to Donors Need Adjusted Language If Gift Came From a Donor-Advised Fund

Don't confuse donors by mentioning tax deductibility if the tax deduction has already been taken, via a donor-advised fund (DAF).

** LEGAL UPDATE **

Readers of Effective Fundraising for Nonprofits know the importance of sending thank-you letters to donors, both because it's polite and fosters connection with those who support your work, and because it's in some cases required by the IRS.

As shown in the book, such thank-you letters normally contain standard language to the effect that the donation is tax deductible to the extent allowed by law, and mentions any amount by which the deduction must be reduced based on goods received in return.

There is one situation, however, in which language about tax-deductibility should simply be removed from the thank-you letter. That's one in which the donation came from a donor-advised fund (DAF). Odds are good that you will receive some of these; they account for around 13% of all U.S. charitable giving. (Source: NPTrust annual DAF Report.)

DAFs are usually set up by individual donors via sponsoring organizations, with the idea that the organization handles details, pools funds for greater impact, and makes recommendations about grants. The biggest benefit to the donor is, significantly, that contributing to a DAF provides an immediate tax deduction. In other words, the money is deductible upon transfer to the fund, not when it's eventually given to the charitable organization.

But if your letter mentions tax deductibility, you might confuse the donor; not to mention that you're making a promise that can't be delivered on. The donor should have already received a tax receipt from the DAF sponsoring organization. They don't merit a double deduction for one donation.

What you can and should do in such a thank-you letter, however, is to express gratitude for the donor having "advised the gift be made via [name of] fund."

That will be especially important if the donor hires an accountant or other tax professional, as a way to indicate to that person that the tax deduction shouldn't be counted twice.

Effective Date: January 1, 2020