Sponsoring Charity Events the IRS-Approved Way

It’s your ideal charitable contribution. The nonprofit you support is holding a golf tournament fundraiser. You set up a Donor-Advised Fund years ago for charitable giving. Sponsoring a hole raises money for the organization, gives your business some publicity, and scores you some tourney swag — and enough green fees to assemble two foursomes.

Win-win-win, right? 

Unfortunately, that’s not always the case when Uncle Sam is involved.

When it comes to charitable giving, individuals often seek creative ways to support nonprofit organizations while maximizing their tax benefits. Two popular methods are Donor-Advised Funds (DAFs) and Qualified Charitable Distributions (QCDs). It is crucial to understand the limitations of these financial instruments, particularly in the context of purchasing sponsorships for nonprofit fundraising events.

A Qualified Charitable Distribution allows individuals aged 70½ and older to donate up to $100,000 directly from their Individual Retirement Accounts (IRAs) to qualifying charities without having to report the distribution as taxable income. While this is an excellent strategy for tax efficiency, QCDs can only be directed toward qualifying charitable organizations for charitable purposes. IRS regulations stipulate that this distribution cannot be used to receive tangible benefits or goods. This includes sponsorships that confer perks such as tickets or promotional exposure. Because sponsorships typically provide a reciprocal benefit to the donor — such as advertising space or event access — using QCDs for these purposes violates IRS guidelines.

Similarly, DAFs are designed to allow donors to make charitable contributions, receive immediate tax deductions, and then advise on the distribution of those funds over time. While DAFs provide greater flexibility in selecting which nonprofits to support, they come with strict regulations. Contributions made from a DAF to purchase sponsorships at fundraising events can be problematic for the same reasons as using QCDs — the donor receives a benefit in return for their contribution, diminishing the charitable intent and purpose of the donation. 

The IRS views these arrangements as potentially non-compliant. As a result, such contributions may not qualify for the tax advantages that donors might otherwise expect.

Furthermore, the ethical implications of using these charitable vehicles for sponsorships raise concerns. Engaging in transactions that blur the lines between charitable donations and business benefits could lead to reputational risks for both the donor and the charity. Nonprofits depend on the goodwill of their supporters and the integrity of their fundraising practices to maintain trust and transparency with their donors and stakeholders.

Sponsoring a charity golf tournament is a great way to help an organization meet needs in its community. But don’t do it with a QCD or DAF. Doing so can not only jeopardize your tax advantages, but also undermine the core purpose of charitable contributions overall. Donors looking to support nonprofit fundraising events should consider alternative methods that align with the spirit of giving and comply with the law.

Talk with your Auxilio Partner Strategist about how to communicate potential tax implications to your donors of supporting your fundraising event. If you’re not yet an Auxilio client partner, contact us to learn how we can serve your church or faith-based nonprofit and reduce your administrative burden to free you up for ministry.