Once a transaction is processed and receipted by PandaPay, it lands in our donor-advised fund (“DAF”) at the Social Good Fund (“SocialGood”), a 501(c)(3) public charity dedicated to improving the logistics of philanthropy. The DAF infrastructure is a critical component of how we do what we do, so let’s dig in.
What is a Donor-Advised Fund?
Imagine you’re a large foundation that donates and receives a lot of money for a lot of great causes. Managing individual donations, receipts, tax deductions, and other administrative concerns can become extremely tedious. Donor-advised funds, or DAFs, allow foundations to pool private contributions and streamline them through a public charity.
To participate in a DAF, you would normally have to open an individual or organizational account within the fund, and deposit your contribution. You wouldn’t be able take out any prior contributions, but you could advise where the total proceeds in the fund were charitably distributed or invested. Your fund’s sponsoring charity would then have the authority to approve or deny those recommendations, and be held responsible for ensuring that the assets are granted to qualified nonprofits.
Traditionally, DAFs are used by individuals or organizations with large private budgets. It’s a widely accepted model, and nearly $100 billion in assets are held in DAFs at any given time.
What does it have to do with PandaPay?
PandaPay operates as a fully digital DAF, with SocialGood operating as the sponsoring charity.
Our DAF at SocialGood only accepts and holds donations processed through PandaPay. As the sponsor charity, SocialGood applies appropriate expenditure and quality controls, and disburses funds to the charities advised by the donor, if possible (more on this below). SocialGood serves a multitude of functions as the custodian, administrator, auditor, aggregator, and distributor that ensures the compliant use of funds. SocialGood takes irrevocable ownership and responsibility for all donations made through PandaPay until they are disbursed to another charity or nonprofit.
This setup significantly lowers the barrier of entry to large-scale charitable giving, and lets your organization unlock the benefits of giving without disrupting normal business operations.
What are the benefits of operating as a DAF?
PandaPay’s use of the DAF structure allows all sorts of organizations to embed charitable experiences into their business models. By partnering with SocialGood, we’re able to aggregate scale and negotiating power, which fuels our effort to secure the lowest possible cost of donation processing and work toward a sustainable financial infrastructure for the nonprofit sector. Our built-in compliance and verification tools work seamlessly with SocialGood to standardize intake, receipting, and disbursement of donations.
Let’s break these down a little further:
DAFs are sponsored by a charity, in our case, SocialGood. This means SocialGood handles the administrative work, such as managing investments, record keeping, tax receipting, and grant administration. By allowing PandaPay to shoulder the burden of execution and administration, you can focus instead on your charitable goals and advisements (not to mention the rest of your business). This model of centralizing and standardizing work is much more cost effective than running a private foundation. It’s especially helpful in auditing qualified charities, which can be an expensive and time-consuming process.
DAFs are the only charitable-giving vehicle that allows donors to make grants 100% anonymously. PandaPay does not collect any data about donors beyond the minimum necessary to securely process donations and fulfill our obligations. We encourage charities and donation platforms to develop relationships directly if they’d like to share more information about giving patterns and donor data.
DAFs offer the maximum tax benefits allowed by law. Donors receive an immediate tax deduction when contributing to a DAF. Compared to private foundations, which can only deduct between 20% and 30% of their adjusted gross income (AGI) depending on cash or securities donations, corporations donating assets through DAFs can deduct 30% of their AGI, and individuals can deduct up to 50%. Contributions to DAFs receive fair market value deductions. DAFs, like other philanthropic vehicles, can help donors avoid tax on capital gains. Of course, each individual tax situation is different and you should consult a qualified tax advisor concerning your specific situation.
Investment prior to disbursement
DAF assets can be invested and may grow tax-free, which means that with positive returns over time, more assets are available for charitable purposes than the original contributions. (Awesome!)
Investment offerings for DAFs vary widely among charitable sponsors. The assets within DAFs legally belong to the charitable sponsor, which assumes all the risk related to managing and investing the assets. At SocialGood, investments are chosen by SocialGood in collaboration with consultants and investment advisors.
So… where does the money actually go?
PandaPay routes all donations through SocialGood. SocialGood then disburses the funds to your designated charity in accordance with IRS rules and regulations. Your donors or customers will make a donation or payment to your charity or business as usual – everything is taken care of on the backend.
As required by federal law, exclusive legal control over donations is retained at all times by SocialGood until disbursed to your designated charity. However, if at any time your designated charity does not meet SocialGood’s criteria for receiving donations (e.g., it’s not recognized by the IRS as a public charity; it’s not accepting donations; it doesn’t meet SocialGood’s verification standards with applicable regulators, etc.), or if the nonprofit returns a donation to SocialGood for any reason, then SocialGood may, at its sole discretion, select an alternate charity for the donation or allocate the donation to a different fund maintained by SocialGood used solely for charitable purposes.
However, this is pretty rare. Once SocialGood receives your funds, it’s usually straightforward for them to make disbursements as you advise.
Can you tell me more about Social Good Fund?
Social Good Fund (“SocialGood”) is a nonprofit public benefit corporation qualified as exempt from federal income tax under Section 501(c)(3) of the Internal Revenue Code, EIN: 46-1323531. SocialGood is classified as a public charity under IRC Sections 509(a)(2) and 170(b)(1)(A)(vi) and is headquartered in Richmond, California.
SocialGood works to create and establish positive influences for individuals, communities, and the environment. Its goal is to sponsor and develop projects that will help positively impact and develop local communities into healthier and happier places to live, to work, and to be.
Our collaboration with SocialGood is founded upon the mutual desire to innovate and improve fundraising mechanisms for nonprofits through technology and data-driven approaches. To learn more, visit socialgoodfund.org.