The year 2020 has brought great change, from the global pandemic, quarantine lockdown, social reform, and more, but we believe it has also served to magnify and expand existing trends. For example, more for-profit companies commit their voices, time, and resources to the communities in which they operate. The benefits of corporate philanthropy have become increasingly more evident over the past decade. While many might suspect financial reasons, such as tax relief, to be the primary reason businesses engaged in charitable programs, new research indicates that the motivations extend beyond direct financial implications. Companies operating like this believe strong corporate citizenship will help them to attract and retain top talent and appeal to customers whose values align with those of the company. Simply put, the symbiotic relationship between the corporations and their community is intended to benefit both parties.

As for-profit entities, corporations need to balance maximizing their charitable impact with their financial performance. This makes it crucial to know the different avenues available to facilitate their giving, including the costs and benefits associated with each.

Ways Corporations Engage in Philanthropy

There is no one-size-fits-all solution to philanthropy. Discuss with your finance, legal, and/or accounting teams to determine the approach that best fits with your company and its objectives.

Direct Giving

Direct giving is as straightforward as it sounds: giving money or assets directly to a nonprofit organization. This can come in the form of cash donations or in-kind gifts. Direct gifts often occur in response to one-off requests from charitable organizations and may not lead to long-term philanthropic engagement.

Foundations (Public Charity or Private Foundation)

The second option is for the corporation to create its own 501(c)(3) charitable organization in the form of a private foundation or public charity. The majority of 501(c)(3) organizations will be private foundations due to the additional administrative and funding complications required to maintain public charity status.¹ The private foundation is typically funded with cash or company stock and is operated and financially supported by the corporation. The foundation makes qualified distributions of at least the required 5% of its assets each year toward philanthropic causes that align with the company’s (and its employees’) values, goals, and objectives. This will continue in perpetuity or until the assets of the foundation are fully distributed.

	Direct Giving	Corporate Foundation	Donor-Advised Fund
Ease of Implementation	Very easy	Requires legal services	Simple
Administrative and Compliance Costs	Minimal costs	Ongoing legal, tax, and accounting fees; investment management fees	Administrative and investment management fees
Ownership	None/only restrictions if specified in the terms of the grant	Full Control	None, but some advisory privileges retained
Privacy	Typically donor choice and can depend on the recipient	Disclosed on Form 990 or Form 990-PF	Ability to give anonymously, if desired
Longevity	One time	Recurring	Recurring
Corporate Recognition	One time	Naming rights and opportunity for ongoing goodwill and publicity	Potential to be recurring

Donor-Advised Fund

The third option, and the focus of this paper, is a donor-advised fund (DAF). A DAF is a separately identified fund that is maintained and operated exclusively by a 501(c)(3) charitable organization, which is called a sponsoring organization. Once a donor (in this case, the corporation) makes a contribution, the sponsoring organization (the nonprofit) has legal control over it, while the corporate donor retains advisory privileges with respect to distribution of funds and the investment of assets in the account.² The advantage of this approach is that the sponsoring organization is responsible for the administrative and compliance costs, not the corporation.

Choosing a DAF as a Philanthropic Vehicle

How can a DAF positively impact your company?

A DAF is an easy-to-maintain philanthropic vehicle providing donors with flexibility in the frequency and timing of grants to qualified charities while offering the potential for growth of the donation in a tax-sheltered vehicle and an immediate tax benefit to the donor. In recent years, donors seeking a simple, efficient, low-cost option to accomplish their charitable giving goals tend to choose DAFs over other charitable giving options.

Another major benefit to this charitable giving vehicle is that donors can choose to remain anonymous or make their charitable distributions public. DAFs provide donors with the option of recommending grants and specifying amounts of their choosing to qualified charities. Through it all, the sponsoring organization is responsible for maintaining the funds and handling the logistics, while the donor retains advisory privileges.

How does a DAF work?

Donors can contribute cash or stock into the sponsoring organization’s DAF and receive an immediate tax deduction for the contribution. The contributions funded into that particular DAF are invested and grow tax-free because the assets now belong to a tax-exempt sponsoring organization. When the donor is ready to recommend a charitable distribution, they make a request to the sponsoring charity to make a distribution.

Below is an illustration of the simplicity of a DAF in relation to the contribution from the donor, maintenance, and distribution to a charity.

Flow Chart

 

View accessible version of this chart.

Donor-Advised Fund Considerations

There are several considerations when it comes to establishing and maintaining a DAF, including:

• Regulation: The utilization of the policies and procedures of the nonprofit organization, preapproved by the Internal Revenue Service.
• Grant Making: Reliance on the nonprofit organization for the actual distribution, as well as the due diligence connected to compliant grant making. There is no minimum distribution requirement per se. Grants can be made anonymously.
• Ease in Contributions to the DAF: Consider when it would be best for your company to take a deduction for charitable giving. DAFs can be set up quickly, giving a corporation flexibility in choosing the right timing relative to their cash flows in order to maximize the tax deductibility of their donation (and/or any subsequent contributions).
• Management and Administration: DAFs bring simplicity to the charitable giving process; however, the company gives up some control over the investment and administration of the contribution.

Conclusion

Recognizing that charitable giving is a crucial element in a corporation’s mission allows for a stronger relationship between the company and the community it serves. There are many different avenues that a corporation can choose to fulfill its charitable impact, making it worthwhile to consider the full range of options available. A DAF provides a company with the simplicity of administration and investment management while allowing donors to make grant requests on their own timeline. The ease of establishing and maintaining a DAF effectively allows this low-cost charitable vehicle to be a long-term solution for creating an impact on your company and the communities in which it operates.

Please contact your PNC representative for more information.

About The Endowment & Foundation National Practice Group

The Endowment & Foundation National Practice Group builds on PNC Bank’s long-standing commitment to philanthropy and is focused on endowments, private and public foundations, and nonprofit organizations. Our group is structured to help these organizations address their distinct investment, distribution and capital preservation challenges.

For more information, please contact Henri Cancio-Fitzgerald at henri.fitzgerald@pnc.com.

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Accessible Versions

Text Version of Flow Chart

Step 1: Donor makes a contribution to a sponsoring charity.

Step 2: The sponsoring charity maintains separately identified funds that are invested in pools or separate accounts generally in accordance with the donor’s recommendation.

Step 3: The sponsoring charity distributes grants to qualified charities at its discretion, but can follow the donor’s recommendation.