Donor-Advised Funds and Form 990: What Recipient Nonprofits Need to Know

Estimated reading time: 15 minute(s)

Donor-advised funds have become one of the most significant sources of charitable giving in the United States. In 2023, DAF sponsors distributed over $54 billion in grants to nonprofits, and for the nonprofits on the receiving end, these grants can create real confusion when it comes to filing Form 990.

What is a Donor-Advised Fund?

A donor-advised fund is a charitable giving account held at a sponsoring organization; typically a community foundation, a financial institution’s charitable arm, or a public charity focused on grant-making. Individuals or organizations contribute assets to the fund, receive an immediate tax deduction, and then recommend grants to qualified nonprofits over time.

 The key word is “recommend”. The sponsoring organization holds legal ownership of the funds. The donor advises where the money goes, but the sponsor has final say and issues the actual grant. 

When a DAF makes a grant to your nonprofit, the grant legally comes from the sponsoring organization, even though an individual donor originally funded it and directed the gift your way. This distinction has direct implications for how you report the contribution on Form 990.

How DAF Grants Appear on Form 990

When your nonprofit receives a grant from a donor-advised fund, the reporting on Form 990 follows the legal structure of the gift, not the donor’s intent. Getting this right from the start prevents errors on Schedule B and Schedule A, your public support calculation.

The Legal Donor Is the Sponsoring Organization 

Because the sponsoring organization controls the funds, the DAF sponsor is the legal donor of record, not the individual who contributed to the fund. This means:

• The grant check or wire transfer will come from the sponsoring organization
• Any acknowledgement letter your nonprofit issues should be addressed to the sponsoring organization
• On Form 990, the grant is attributed to the sponsoring organization, not the underlying individual donor

Schedule B: Who gets listed? 

Schedule B (Schedule of Contributors) requires you to list contributors who gave $5,000 or more during the year, or for public charities, any contributor whose gift represents 2% or more of total contributions. Importantly, Schedule B is not publicly disclosed (the IRS receives it), but it still needs to be reported accurately. 

The Public Support Test: A Critical Consideration 

For some public charities filing as a 509(a)(1) or 509(a)(2) organization, the public support test is one of the most important calculations on Form 990. It’s what distinguishes a public charity from a private foundation in the eyes of the IRS. DAF grants can significantly affect this calculation, in both helpful and potentially complicating ways. 

DAF giving has grown dramatically over the past decade. Nonprofits that previously had no concentration concerns may now find that a meaningful portion of their revenue flows through just two or three major sponsoring organizations. Monitoring this trend in your contribution data is important for financial stewardship.

Restricted vs. Unrestricted DAF Grants 

DAF grants can arrive unrestricted (for general operating purposes) or with donor recommendations attached (ex. “for the after-school literacy program”). 

On Form 990, restricted grants are handled the same way as any other restricted contribution:

• Temporarily restricted (purpose restriction): Reported as revenue in the period received; released from restriction when the specified purpose is fulfilled.
• Temporarily restricted (time restriction): Released in the year the time period expires
• Permanently restricted: Relatively uncommon for DAF grants but possible if terms require the principle to be held in perpetuity.

Best Practices for Recipient Nonprofits 

1. Track DAF grants by sponsoring organization from the start

Set up your accounting system to record the sponsoring organization and applicable restrictions. Keep this documentation in your files.

2. Request grant documentation from the sponsor 

Most DAF sponsors provide a grant award letter identifying the sponsoring organization, any donor-directed purpose, and applicable restrictions. Keep this documentation in your files.

3. Model your public support test mid-year 

Don’t wait until your accountant is preparing the 990 to calculate your public support percentage. Review your Schedule A mid-year.

4. Communicate your DAF policies to donors 

Many donors don’t realize the reporting implications of giving through DAF. Consider publishing a brief FAQ or including a note in your gift acceptance policy about how DAF grants are processed and acknowledged. 

5. Use Tax990 to stay organized

When you e-file your Form 990 through Tax990, Schedule A and Schedule B are built directly into the filing workflow, with calculations that help surface public support issues before you submit. Organizing your DAF grant data in advance makes the process significantly smoother. 

The Bottom Line 

Donor-advised funds are an important and growing part of the nonprofit funding landscape, and understanding how they interact with Form 990 is essential for accurate compliance. The core principle is: the DAF sponsor is the legal donor, not the individual. But the implications require careful attention. 

If your organization has seen DAF giving now in recent years, now is a good time to review how those grants are being recorded, reported, and factored into your Schedule A calculations. Getting it right protects your public charity status and ensures your 990 accurately reflects the support your organization has earned. 

Interested in learning more about Form 990 schedules? Find out more here.