How do community foundations and donor-advised funds work?
Community Foundations and Donor-Advised Funds
A community foundation is a public charity that holds many separate charitable funds for a defined geographic area. A donor-advised fund is an account inside a sponsoring charity from which an individual donor recommends grants. You apply to one and cultivate the other.
Current figures — verified 2026-08-11
Item Value Source Community foundation scale, survey participants Over 400 community foundations holding nearly $159 billion in assets, receiving over $18 billion in gifts, making over $16.5 billion in grants Council on Foundations, CF Insights Administrative fees as a share of average community foundation operating revenue More than two-thirds Council on Foundations, CF Insights US donor-advised fund sponsors 1,512 in FY2024 — 103 national, 803 community foundations, 606 single-issue charities DAF Research Collaborative, Annual DAF Report Donor-advised fund accounts, assets, contributions, grants FY2024: 3.59 million accounts, $327.87 billion assets, $90.57 billion contributions, $64.60 billion grants DAF Research Collaborative Aggregate donor-advised fund payout rate and average account size FY2024: 25.2 percent; $91,300 average account DAF Research Collaborative Prior donor-advised fund series 2023: $54.77 billion in grants, $251.52 billion in assets, 1,782,281 accounts, 23.9 percent payout National Philanthropic Trust, 2024 DAF Report Private foundation minimum distribution Generally 5 percent of the fair market value of noncharitable-use assets IRS, SOI Private Foundations Terms and Concepts Excise tax on a prohibited benefit from a DAF distribution 125 percent of the benefit 26 U.S.C. § 4967 Excise tax on a taxable DAF distribution 20 percent on the sponsoring organization; 5 percent on an agreeing fund manager, capped at $10,000 26 U.S.C. § 4966 Median change in giving, community foundations vs all foundations 14.1 percent vs 5.8 percent for 2025 Candid, Foundation Giving Forecast Written acknowledgment threshold $250 or more per contribution IRS, Written Acknowledgments These figures change. Verify against the linked source before relying on them. Report an outdated figure
Key takeaways
- A community foundation is a public charity, not a private foundation.
- Only some of its funds are open to competitive applications.
- A donor-advised fund has no annual distribution requirement.
- You cannot apply to a donor-advised fund; you cultivate its donor.
- A DAF grant may not buy the donor goods, benefits, or tickets.
What is a community foundation?
A community foundation is a publicly supported 501(c)(3) charity that pools contributions from many separate donors into many separate charitable funds serving a defined geographic area, and that makes grants and provides civic leadership within that area. Because a community foundation is publicly supported rather than privately endowed, it is not a private foundation.
The classification has consequences. A private foundation must distribute a minimum amount annually or face an excise tax, and it operates under the Chapter 42 excise regime covering self-dealing and taxable expenditures (IRS, Private Foundation Excise Taxes). A community foundation, as a public charity, carries neither the payout floor nor that regime — which means its grantmaking volume is a function of its donors and its board rather than of a tax rule.
Within the wider set of funding tracks by funder type, a community foundation occupies an unusual position: it is simultaneously a grantmaker you can apply to and the largest single concentration of individual philanthropic donors in most regions. Community foundations make up a substantial share of all donor-advised fund sponsors in the United States (see current figures above).
Community foundations also run services that have nothing to do with competitive grants. Many operate scholarship programs, provide fiscal sponsorship for unincorporated projects, hold endowments on behalf of other nonprofits, publish regional needs assessments, and convene funders around a local issue. Any of those can be a first point of contact.
What kinds of funds does a community foundation hold?
A community foundation holds several distinct fund types, and the fund type — not the foundation — determines whether an outside organization can apply. Discretionary and field-of-interest funds run competitive grant programs. Donor-advised, designated, and agency funds do not.
The table below lists the fund types a community foundation typically holds and who directs each one.
| Fund type | Who directs the grant | Open to applications |
|---|---|---|
| Discretionary or unrestricted | Community foundation board and staff | Yes — the competitive program |
| Field of interest | Community foundation staff, within a donor-defined issue | Usually, same process |
| Donor-advised | The individual donor recommends | No — cultivate the donor |
| Designated | Fixed to named recipients by the original donor | No |
| Scholarship | A committee, using donor criteria | Individuals only |
| Agency or organizational endowment | The nonprofit that owns the fund | Not applicable |
Unrestricted and field-of-interest dollars are usually a small share of a community foundation’s total grantmaking, because donor-advised assets have grown faster than unrestricted endowment. That imbalance explains a common frustration: an organization reads a headline asset figure, applies to a modest discretionary program, and concludes the community foundation is smaller than advertised. The discretionary program is the door; the donor base behind it is the building.
The strategic implication is that a community foundation relationship should be pursued for two returns at once. The competitive grant is the first. The introduction to local donors who hold advised funds, and the implicit endorsement that comes with being a known grantee, is usually the larger one.
Why is a community foundation often the best first funder for a local organization?
A community foundation is frequently the highest-yield first institutional funder for a small organization because its applicant pool is bounded by geography rather than by subject, its diligence costs are low, and its mandate is to serve the place where you already work.
Five structural advantages explain the pattern:
- A smaller field. A place-based program competes only against organizations in the same region, not against every organization in the country working on the same issue.
- Cheap diligence. Community foundation staff can verify an unknown applicant by calling three local people. National funders must buy that confidence through process, which raises the bar for first-time applicants.
- Dense warm paths. Community foundation boards are composed of local civic leaders whose networks overlap with local nonprofit boards by default.
- Faster, more renewable, more flexible money. Community foundation grants are typically smaller than national foundation grants but move on shorter cycles and are more often unrestricted or renewable.
- Reference value. A community foundation grant functions as proxy diligence for later funders: a local institution with reputational exposure examined you and said yes.
Sequencing follows from that. A defensible order for a new organization is a local discretionary grant first, then local donor-advised fund relationships, then regional and statewide funders, then national foundations. Organizations that invert the sequence spend years writing competent proposals to funders who have no mechanism for saying yes to an unknown applicant, a problem covered in more depth in building a grant pipeline.
Community foundations have also been increasing their grantmaking faster than other foundation types by median, according to Candid’s annual survey of grantmakers (see current figures above).
What is a donor-advised fund?
A donor-advised fund is a separately identified account inside a public charity, funded by a donor who takes an immediate charitable deduction, over which the donor retains the right to recommend grants but not the legal right to direct them. The IRS describes it as “a separately identified fund or account that is maintained and operated by a section 501(c)(3) organization, which is called a sponsoring organization,” and states that “once the donor makes the contribution, the organization has legal control over it” while “the donor, or the donor’s representative, retains advisory privileges with respect to the distribution of funds and the investment of assets in the account” (IRS, Donor-Advised Funds).
Three parties sit in a donor-advised fund transaction. The sponsoring organization is a public charity — a national sponsor affiliated with a financial institution, a community foundation, or a single-issue charity. The donor advisor is the individual, family, or company that contributed the assets. The grantee is the operating charity that eventually receives the money.
The DAF Research Collaborative, which publishes the annual aggregate data series originated by the National Philanthropic Trust, states the mechanism plainly: “Donor advisors receive an immediate tax deduction for their contributions to the DAF and recommend grants to charities over time from the assets in the DAF” (DAF Research Collaborative).
The deduction timing is the whole design. The tax benefit is taken when assets enter the fund; the grant to a working charity happens whenever the donor advisor recommends it, which may be the same week or many years later. For a nonprofit, that gap is the single fact that changes fundraising behavior.
Why does a donor-advised fund have no annual payout requirement?
Neither a donor-advised fund nor its sponsoring organization is subject to a statutory annual distribution requirement, because the sponsoring organization is a public charity rather than a private foundation. The minimum distribution rule and its excise tax apply to private foundations, not to public charities that maintain advised funds (see current figures above; IRS, Taxes on Failure to Distribute Income).
The rules that do apply to a donor-advised fund are about where money can go, not how fast. A distribution to a natural person, or to a non-charitable purpose, or to certain organizations without the sponsor exercising expenditure responsibility, is a taxable distribution subject to excise tax under IRC § 4966 (26 U.S.C. § 4966). A distribution that confers a more than incidental benefit on the donor, the donor advisor, or a related person carries a separate and much heavier excise tax under IRC § 4967 (see current figures above).
Aggregate donor-advised fund payout has run well above the private foundation minimum in published survey data (see current figures above), so the absence of a legal floor should not be read as a claim about behavior. The two rates are also computed on different bases and are only loosely comparable.
What matters operationally is not the aggregate rate but the absence of a solicitation channel. Because there is no distribution obligation and no application process, a donor-advised fund grant is initiated by a private individual acting on a private timetable. No amount of proposal quality changes that.
How does a nonprofit receive and acknowledge a donor-advised fund grant?
A donor-advised fund grant arrives as a check or transfer from the sponsoring organization, not from the individual donor, and it must be acknowledged to the sponsor as the legal grantor while the donor is thanked separately and correctly. Handling the acknowledgment wrongly creates a real tax exposure for the donor.
Five mechanics govern receiving a donor-advised fund grant:
- The sponsor is the legal grantor. The funds are the sponsoring organization’s property. Record the gift from the sponsor, and thank the advisor as the person who recommended it.
- The donor gets no new deduction. The advisor deducted the contribution when it entered the fund, so an acknowledgment stating a deductible amount to the advisor is factually wrong.
- No goods or benefits may flow back. A distribution that results in the donor, advisor, or a related person receiving a more than incidental benefit triggers an excise tax exceeding the benefit itself (see current figures above). Event tickets, membership benefits, auction items, and gala seats are the recurring problem.
- Treasury has addressed the ticket question directly. In Notice 2017-73, Treasury and the IRS stated that relief of a donor advisor’s obligation to pay the full price of a ticket to a charity-sponsored event “can be considered a direct benefit to the Donor/Advisor that is more than incidental,” and applied the same analysis to the deductible portion of a membership fee (IRS Notice 2017-73).
- Many grants arrive anonymous. Sponsors often transmit an advisor’s name and address, but not always. An unattributed sponsor check is a cultivation lead, and a database that cannot trace it loses the relationship.
Ordinary substantiation rules still apply to gifts the individual makes directly, including the written acknowledgment threshold and the requirement to state whether goods or services were provided in return (see current figures above; IRS, Written Acknowledgments). Naming the organization’s legal name, employer identification number, and mailing address on a giving page, and offering a “give from your donor-advised fund” option, removes the friction between a recommendation and a transfer.
How do community foundations and donor-advised funds compare?
A community foundation and a donor-advised fund differ in who decides, whether an application exists, and what a nonprofit can do to influence the outcome. The table below compares the two on the dimensions that change a fundraiser’s behavior.
| Dimension | Community foundation discretionary fund | Donor-advised fund |
|---|---|---|
| Decision-maker | Foundation board and program staff | The individual donor advisor |
| Application | Published guidelines and deadlines | None; grants are recommended |
| Annual payout obligation | None as a public charity | None |
| Programmatic diligence | Substantive review of the proposal | Charitable status verification |
| How you influence it | Proposal quality and local relationships | Individual donor cultivation |
The two vehicles overlap in practice because community foundations are themselves major donor-advised fund sponsors (see current figures above). A single community foundation relationship therefore touches both columns of the table: a competitive program you can apply to, and a population of local advised-fund donors you can meet.
Neither vehicle is a private foundation, so neither behaves like the funders described in foundation grants. A private foundation is legally obligated to give money away every year and publishes an itemized grant record; a donor-advised fund is neither obligated nor itemized at the account level.
What goes wrong with community foundation and donor-advised fund fundraising?
Failures in this track cluster around treating a donor-advised fund as an institutional funder and treating a community foundation as a single door. Six patterns recur.
- Trying to apply to a donor-advised fund. Sponsors do not run grant competitions. A proposal sent to a national sponsor reaches no decision-maker.
- Losing anonymous sponsor checks. A check recorded under the sponsor’s name with no attempt to identify the advisor converts a live donor relationship into an accounting entry.
- Providing benefits in return. Applying an advised-fund grant to a gala table, membership benefits, or an auction purchase exposes the donor and the fund manager to excise tax, and the nonprofit to a damaged relationship.
- Fulfilling a personal pledge with fund assets without checking. A legally binding personal pledge satisfied by a sponsor’s distribution raises the more-than-incidental-benefit question and should be routed through the sponsor’s own policy first.
- Applying only to the discretionary program. Treating the smallest pot as the entire relationship ignores the donor introductions, fiscal sponsorship, scholarship administration, and convening functions that a community foundation also runs.
- Ignoring geographic eligibility. Place-based funds are limited by service area in their governing documents. An organization slightly outside the boundary is not a close call; it is ineligible.
The failure mode with the longest tail is quiet: an organization builds no capacity to identify advised-fund donors, so a growing share of its individual giving arrives from sponsors it never thanks and donors it never meets. Fixing that is a database and acknowledgment-workflow problem, not a proposal problem.
This article is general information about community foundations, donor-advised funds, and the federal rules that govern them, not legal or tax advice. Questions about a specific grant, benefit, or pledge should be reviewed with counsel or with the sponsoring organization.
Frequently asked questions
Can a nonprofit apply for a grant from a donor-advised fund?
No. Donor-advised fund grants are recommended by the individual donor advisor, and sponsoring organizations do not run competitive application processes for advised-fund assets. The addressable strategy is individual donor cultivation, plus removing friction so a donor can recommend a grant easily.
Is a community foundation a private foundation?
No. A community foundation is a publicly supported charity, so the private foundation excise regime and the annual minimum distribution requirement do not apply to it. That is also why a community foundation’s grantmaking volume tracks its donors and board decisions rather than a tax-driven floor.
Who should be thanked for a donor-advised fund grant?
Both parties, differently. The sponsoring organization is the legal grantor and should receive the formal acknowledgment. The donor advisor should receive a personal thank-you that does not state a deductible amount, because the advisor already took the deduction when the assets entered the fund.
Can a donor-advised fund grant pay for an event ticket or gala table?
Generally no. Treasury and the IRS have stated that subsidizing a donor advisor’s attendance at a charity-sponsored event confers a more than incidental benefit, which triggers an excise tax on the advisor and potentially on the fund manager. Offer a non-benefit giving path instead.
How do you find donors who hold donor-advised funds?
Start with the sponsor checks already in your records, then ask directly. Adding a donor-advised fund option to giving pages, listing the organization’s legal name and employer identification number, and asking existing donors whether they give through a fund surfaces most of them without external data.
Which community foundation funds can you actually apply to?
Discretionary or unrestricted funds and, usually, field-of-interest funds. Donor-advised, designated, and agency funds are directed by someone other than the community foundation’s staff. The published grant guidelines identify which competitive programs exist and which service area they cover.
Related topics
- Funding Tracks by Funder Type — the hub covering federal, state, foundation, corporate, and innovation funding
- Foundation Grants
- Corporate Giving and Corporate Grants
- Fiscal Sponsorship for Grant Seekers
- Researching a Funder with Form 990
Sources
- Internal Revenue Service, “Donor-Advised Funds.” https://www.irs.gov/charities-non-profits/charitable-organizations/donor-advised-funds (accessed 2026-08-11)
- Office of the Law Revision Counsel, 26 U.S.C. § 4966, Taxes on taxable distributions. https://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title26-section4966&num=0&edition=prelim (accessed 2026-08-11)
- Office of the Law Revision Counsel, 26 U.S.C. § 4967, Taxes on prohibited benefits. https://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title26-section4967&num=0&edition=prelim (accessed 2026-08-11)
- Internal Revenue Service, Notice 2017-73, “Request for Comments on Application of Excise Taxes With Respect to Donor Advised Funds in Certain Situations.” https://www.irs.gov/pub/irs-drop/n-17-73.pdf (accessed 2026-08-11)
- Internal Revenue Service, “Private Foundation Excise Taxes.” https://www.irs.gov/charities-non-profits/private-foundations/private-foundation-excise-taxes (accessed 2026-08-11)
- Internal Revenue Service, “Taxes on Failure to Distribute Income — Private Foundations.” https://www.irs.gov/charities-non-profits/private-foundations/taxes-on-failure-to-distribute-income-private-foundations (accessed 2026-08-11)
- Internal Revenue Service, Statistics of Income, “Private Foundations Study Terms and Concepts.” https://www.irs.gov/statistics/soi-tax-stats-private-foundations-study-terms-and-concepts (accessed 2026-08-11)
- Internal Revenue Service, “Charitable Contributions — Written Acknowledgments.” https://www.irs.gov/charities-non-profits/charitable-organizations/charitable-contributions-written-acknowledgments (accessed 2026-08-11)
- Donor Advised Fund Research Collaborative, Annual DAF Report (FY2024 data). https://www.dafresearchcollaborative.org/annual-daf-report/2025 (accessed 2026-08-11)
- Donor Advised Fund Research Collaborative, “Annual DAF Report” program page. https://www.dafresearchcollaborative.org/research/annual-daf-report (accessed 2026-08-11)
- National Philanthropic Trust, The 2024 DAF Report (2023 data; the series NPT originated and published for nineteen years). https://www.nptrust.org/reports/the-2024-daf-report/ (accessed 2026-08-11)
- Council on Foundations, CF Insights survey results. https://cof.org/cfinsights/results (accessed 2026-08-11)
- Candid, “Foundation payout rate and giving forecast.” https://candid.org/blogs/foundation-payout-rate-giving-forecast/ (accessed 2026-08-11)