Nonprofit pass-through donations let you claim a charitable deduction now even when the end recipient is a project, individual initiative, or new organization that doesn’t yet have its own 501(c)(3) status. You give the money or property to a qualifying tax-exempt intermediary, that intermediary takes legal ownership and passes the funds along, and you deduct the contribution in the year you made it. Cash gifts to a public charity intermediary are deductible up to 60% of your adjusted gross income; appreciated property is capped at 30%. The mechanics are straightforward. The traps, especially around earmarking, are where deductions get lost.
The Two Intermediary Structures
Almost every pass-through arrangement runs through one of two vehicles: a donor advised fund or a fiscal sponsorship. They look similar from the donor’s side (you write one check, you get one acknowledgment, you take one deduction) but the legal machinery underneath is different, and that difference affects how much say you have over where the money goes.
Donor Advised Funds
A donor advised fund is a separately identified account held and controlled by a sponsoring public charity. You contribute cash or other assets irrevocably to the sponsor, take the deduction that year, and later recommend grants from the account to charities you choose.1Internal Revenue Service. Donor-Advised Funds The operative word is “recommend.” Once your money hits the DAF, the sponsor owns it. Your role is advisory. The sponsor can reject a grant recommendation that doesn’t serve a charitable purpose.2Office of the Law Revision Counsel. 26 US Code 4966 – Taxes on Taxable Distributions – Section: (d) Definitions
DAFs have no federally mandated payout timeline. You can contribute in a high-income year, lock in the deduction, and recommend grants years later. Some sponsors set their own minimum activity policies, but federal law imposes no annual distribution requirement.
Fiscal Sponsorship
Fiscal sponsorship is a formal arrangement in which a 501(c)(3) lends its exempt status to a project that doesn’t have its own. The sponsor accepts donations on the project’s behalf, giving you a deductible contribution while the project operates under the sponsor’s legal umbrella. New nonprofits waiting on their IRS determination letter, grassroots initiatives, and internationally focused projects commonly use fiscal sponsorship as a launching pad.
Every fiscal sponsorship should be documented in a written agreement spelling out the sponsor’s responsibilities, the administrative fee (typically 5% to 10% of funds managed), and what happens to remaining assets if the relationship ends. If you’re giving to a fiscally sponsored project, your check should be written to the sponsor, and the acknowledgment you receive should come from the sponsor.
What You Can Actually Deduct
The deduction is pegged to the date you give money or property to the intermediary, not the date the intermediary distributes it to the end project. A December contribution to a DAF is a deduction for that tax year even if grants aren’t recommended until the following summer.
AGI Caps and Carryforward
Cash contributions to a public charity, including DAF sponsors and fiscal sponsors, are deductible up to 60% of your adjusted gross income.3Office of the Law Revision Counsel. 26 USC 170 Charitable Etc Contributions and Gifts Contributions of appreciated capital gain property, like stock held longer than one year, are capped at 30% of AGI.4Office of the Law Revision Counsel. 26 US Code 170 – Charitable Etc Contributions and Gifts
Contributions above the cap in a given year aren’t lost. The excess carries forward for up to five additional tax years.5Internal Revenue Service. Publication 526 – Charitable Contributions
Why Appreciated Stock Beats Cash
Donating appreciated stock to a pass-through intermediary is one of the most tax-efficient ways to fund a gift. You deduct the full fair market value of the shares without recognizing any capital gain. The intermediary can then sell the stock tax-free and deploy the cash. The 30% AGI cap applies, but for most donors the capital-gain avoidance more than makes up for the lower ceiling.
The Paperwork You Need to Keep
For any single contribution of $250 or more, you need a written acknowledgment from the intermediary before you claim the deduction. The acknowledgment must state the cash amount (or describe, but not value, any non-cash property) and say whether the organization provided any goods or services in return.6Internal Revenue Service. Charitable Contributions Written Acknowledgments Getting the acknowledgment is on you; the IRS won’t accept a bank statement instead.7Internal Revenue Service. IRS Publication 1771 – Charitable Contributions Substantiation and Disclosure Requirements
Non-cash gifts come with more paperwork. When your total non-cash contributions for the year exceed $500, file IRS Form 8283 with your return. A single item or group of similar items worth more than $5,000 needs a qualified appraisal from an independent appraiser, and the appraiser must sign Section B of Form 8283.8Internal Revenue Service. Instructions for Form 8283 – Noncash Charitable Contributions The appraisal must be completed no earlier than 60 days before the donation and received before the filing deadline of the return claiming the deduction.
One thing to know about donated property: if the intermediary sells or otherwise disposes of it within three years, the organization has to file Form 8282 and notify you.9Internal Revenue Service. About Form 8282 Donee Information Return That notice doesn’t change your deduction, but it may trigger IRS attention if the sale price differs sharply from the appraised value you used.
The Earmarking Trap
This is where pass-through donations most often go sideways. The IRS draws a sharp line between contributing to a qualified organization for its charitable programs and earmarking a donation for a specific individual or non-qualifying recipient. Cross that line and the deduction disappears entirely.
A donation earmarked for a particular person’s benefit isn’t deductible, even when the check is written to a 501(c)(3). Contributing to a hospital for a specific patient’s care, sending money to a charity designated for one family’s flood relief, or funding a specific child’s expenses at a charitable institution all fail the deductibility test.5Internal Revenue Service. Publication 526 – Charitable Contributions
The rule doesn’t stop you from expressing a preference. You can recommend a DAF grant to a specific charity, and you can support a fiscally sponsored project by name. What you can’t do is condition the gift on the money reaching a named individual, or use the intermediary as a conduit that has no real discretion over the funds.
International Giving
The same principle governs international pass-through donations. A contribution earmarked to go to a foreign organization is not deductible. A contribution to a domestic charity for use in a program the charity operates through a foreign partner can be deductible, as long as the domestic charity approved the program as furthering its own exempt purposes and retains control over how the funds are used.5Internal Revenue Service. Publication 526 – Charitable Contributions The domestic charity must be more than a mailbox. It needs to exercise genuine discretion.
Why the Intermediary’s Compliance Matters to You
You’ve done your part when you write the check and get the acknowledgment. But the intermediary’s compliance can still affect your deduction indirectly, because an arrangement that fails the IRS’s control tests can be recharacterized as an earmarked gift or a private benefit.
DAF sponsors face steep penalties for distributing funds to the wrong recipients. A “taxable distribution” from a donor advised fund triggers a 20% excise tax on the sponsoring organization, plus a separate 5% tax on any fund manager who knowingly approved it (capped at $10,000 per distribution). A distribution counts as taxable if it goes to any individual, or to any non-charitable entity unless the sponsor exercises expenditure responsibility. Distributions to organizations recognized under IRC 170(b)(1)(A), to the sponsoring organization itself, or to another donor advised fund are exempt.10Office of the Law Revision Counsel. 26 US Code 4966 – Taxes on Taxable Distributions That penalty structure is why DAF sponsors rarely grant to anything but recognized charities.
When a DAF grants to a non-charity, or when a fiscal sponsor regrants to a non-exempt project, the intermediary is expected to exercise expenditure responsibility: a pre-grant investigation of the recipient, a written agreement restricting the funds to charitable purposes, a prohibition on lobbying or political use, and periodic expenditure reports from the grantee.11Internal Revenue Service. IRC Section 4945(h) – Expenditure Responsibility12eCFR. 26 CFR 53.4945-5 – Grants to Organizations Before you route a large gift through an intermediary to a project that isn’t itself a 501(c)(3), it’s fair to ask what procedures the intermediary follows. A sponsor that can’t answer is a sponsor whose grants may be recharacterized later.
Every intermediary is also required to screen recipients against the Specially Designated Nationals list maintained by Treasury’s Office of Foreign Assets Control. Executive Order 13224 prohibits transactions with or for the benefit of individuals or entities designated as global terrorists.13U.S. Department of State. Executive Order 13224 For international giving, this matters more than most donors realize; a sponsor without OFAC screening in place is running risk that ultimately reaches its exempt status, and by extension, the deductibility of gifts flowing through it.