Qualified Charitable Distributions (QCDs) and Donor-Advised Funds (DAFs) are lucrative sources of philanthropic dollars available for current use. Donors often use QCDs and/or DAFs to make tax advantaged annual gifts. In addition, donors make tax smart major or even principal gifts from one of these sources. However, both QCDs and DAF grantmaking rely on donor and charity self-reporting to comply with the rules regarding permissible gifts from these sources. 

It is hornbook law that a QCD to charity will only qualify as a QCD if the “entire distribution would be allowable under Section 170” as a charitable deduction. Likewise, it is universally understood that using a donor-advised fund (DAF) to make a grant for a quid pro quo donation is also prohibited. Therefore, both DAF donor advisors and QCD donors may not enjoy quid pro quo benefits that exceed the insubstantial value rules applicable to these gifts. Following tax law, even when the IRS isn’t looking, establishes the credibility and philanthropic motive underlying the preferential tax treatment of charitable gifts.