Donor-advised funds are becoming a common source of support for nonprofits of every size. According to the Chronicle of Philanthropy, donor-advised funds gave $64.9 billion to charities in 2025. For donors, these funds offer a convenient way to manage their giving. For nonprofits receiving a DAF gift for the first time, they can raise some unexpected questions.
The biggest one is simple: who actually made the gift?
The person named in the letter that comes with the check may not be the organization that legally gave the money. That difference matters for nonprofit accounting, donor records, thank-you letters, and Form 990. This guide walks through the basics in plain language.
What Is a Donor-Advised Fund?
A donor-advised fund, or DAF, is a charitable giving account held by a public charity called a sponsoring organization. The IRS describes a DAF as a separately identified fund maintained by a sponsoring organization, where the donor gives up ownership of the money but keeps the ability to recommend how it is used.
How a Donor-Advised Fund Typically Works
Donor
The donor contributes
An individual gives cash, stock, or other assets to a sponsoring organization.
Donor
The donor may take a tax deduction
Any charitable deduction generally happens at the time of that original contribution.
Sponsor
The sponsor takes ownership
The sponsoring organization now legally owns and controls the money.
Donor
The donor recommends grants
Later, the individual (now called a donor advisor) recommends which charities should receive grants.
Sponsor
The sponsor approves and pays
The sponsoring organization reviews the recommendation, confirms the charity is eligible, and sends the grant.
Sponsoring organizations include national charities affiliated with financial firms, community foundations, and some single-issue charities.
The key point
The key point is that the donor advisor recommends, but the sponsoring organization decides and pays.
How DAF Gifts Usually Arrive
A DAF gift typically comes as a check or electronic payment from the sponsoring organization, along with a grant letter. The letter usually names the donor advisor who recommended the gift, though some donors choose to give anonymously. In that case, your organization may only know which sponsor sent the money.
A few things help DAF gifts reach you smoothly:
Share your organization’s exact legal name, mailing address, and Employer Identification Number (EIN) on your website’s giving page. Sponsors use these to confirm your eligibility and send payment.
Make sure the address on file with the IRS is current, since sponsors often rely on public IRS records.
Let supporters know you welcome DAF gifts. Many donors with DAFs look for that before recommending a grant.
Who Is the Donor? The Answer May Surprise You
Imagine your nonprofit receives a $10,000 check from a national DAF sponsor. The grant letter says Jane Smith recommended the gift. Who should your accounting records list as the donor?
The answer is the sponsoring organization. Jane gave the money to the sponsor earlier and may have taken her tax deduction then. The sponsor now owns the money and chose to approve the grant to your organization.
That creates two kinds of records, and both are useful:
| Record | Who It Names | Why It Matters |
|---|---|---|
| Accounting records | The sponsoring organization | Shows who legally made the contribution, for financial statements and Form 990 |
| Development records | Jane Smith, the donor advisor | Helps you thank her, track her giving interest, and build the relationship |
The accounting system should not replace the sponsoring organization’s name with the donor advisor’s name. Keeping both records, each in their own place, gives finance and development what they each need.
Recording DAF Gifts in Nonprofit Accounting
For most organizations, a DAF gift is recorded as contribution revenue under the sponsoring organization’s name when it is received. The basic treatment is the same as any other contribution. The details that need a closer look are in the grant letter.
Questions to Ask When a DAF Gift Arrives
Which sponsoring organization sent the gift? That is the contributor for accounting purposes.
Does the grant letter say the money is for a specific program or purpose? If so, it may be a restricted gift.
Does the letter include any conditions, such as something your organization must do before the money is earned?
Are there reporting or documentation requests from the sponsor?
Is a donor advisor named, or is the gift anonymous? Pass that information to the development team.
One common mix-up: a donor advisor’s personal wishes do not automatically make a gift restricted. What counts is what the sponsoring organization’s grant letter actually says. When in doubt, keep the letter with the accounting records and ask your accountant how to code it.
Form 990: Why Who Sent the Money Matters
DAF gifts can create extra work at Form 990 time. Many nonprofits must list larger contributors on Schedule B. Under the general rule in the IRS Schedule B instructions, that includes any contributor that gave $5,000 or more during the year.
Because the sponsoring organization is the contributor, DAF gifts are added up by sponsor, not by donor advisors. For example:
| Sponsoring Organization | Gifts Recommended By | Total for the Year |
|---|---|---|
| National DAF Sponsor A | Jane Smith ($3,000) & John Brown ($4,000) | $7,000 |
| National DAF Sponsor B | Mary Jones ($2,500) | $2,500 |
| Local Unified Foundation | Robert White ($8,000) | $8,000 |
Neither Jane nor John gave $5,000 on their own, but their two gifts came from the same sponsor, so they count together. Some organizations qualify for a different reporting threshold, so confirm which rule applies with your tax preparer.
The easiest way to get this right is to record the correct contributor all year, rather than trying to sort it out during Form 990 preparation.
Thank-You Letters: Who Gets What?
Thanking DAF donors is a little different from thanking someone who wrote a personal check. The donor advisor already received any tax benefit when they gave to the sponsoring organization. The grant to your nonprofit is not a second deductible gift from them.
Acknowledge the sponsor. Confirm receipt of the grant to the sponsoring organization that sent it.
Thank the donor advisor warmly. When their name is provided, send a personal thank-you recognizing their recommendation.
Skip the tax receipt for the advisor. Avoid language suggesting the individual made a new tax-deductible gift to your organization.
Keep the paperwork. Save the grant letter and payment details with the accounting records.
For general guidance on gift acknowledgments, see the IRS publication on charitable contributions and written acknowledgments.
Simple Habits for Handling DAF Gifts
As DAF gifts become more common, a few consistent practices keep finance and development on the same page:
Code gifts consistently. Record the sponsoring organization as the contributor in the accounting system and keep the donor advisor’s information in the donor database.
Save the grant letter. It shows where the money came from and whether there are any restrictions or conditions.
Read before you code. Do not assume every DAF gift is unrestricted. Check the grant letter first.
Compare records before year-end. Check accounting records against development records and total DAF gifts by sponsor before Form 990 preparation.
Keep finance and development talking. Each team tracks the same gift for different reasons. A shared process helps both.
How Mission Edge Can Help
Mission Edge’s nonprofit accounting services help organizations set up clear processes for DAF gifts and every other type of contribution.
We record contributions under the right source, track restrictions, keep year-end Form 990 information organized, and help finance and development teams work from the same information.
For more on why that foundation matters, see our post on why accurate accounting is critical for small nonprofit organizations.
Donor-Advised Fund FAQs
📊 Who is the donor when a gift comes from a DAF?
For accounting and Form 990 purposes, the sponsoring organization that sent the money is generally the contributor. The person who recommended the gift is the donor advisor.
📊 Can the donor advisor deduct the DAF grant to our organization?
No. Any charitable deduction is generally taken when the donor first contributes to the DAF, not when the sponsor makes a grant.
📊 Should we still thank the donor advisor?
Yes. A personal thank-you builds the relationship. Just avoid language that suggests a new tax-deductible gift.
📊 Are DAF gifts restricted?
Only if the sponsoring organization’s grant letter says so. Many DAF grants are for general support but always read the letter before coding the gift.
📊 Can a donor use a DAF to pay for event tickets?
No. A DAF grant should not provide personal benefits like event tickets or memberships to the donor advisor. Tickets should be paid for separately.
Key Takeaways: DAF Gifts and Nonprofit Accounting
A DAF is a charitable account owned by a sponsoring organization. The donor advisor recommends grants, and the sponsor decides and pays.
Record the sponsoring organization as the contributor and keep the donor advisor’s information in development records.
Read the grant letter for restrictions or conditions before coding the gift.
For Form 990, DAF gifts are totaled by sponsoring organization.
Thank the donor advisor, but do not issue them a tax receipt, and keep event benefits separate from DAF grants.
DAF gifts are a valuable and growing source of support. A few simple steps when the money arrives can save real time and confusion at year-end.
