Hello, I'm searching for information on the IRS rules regulating the designation of gifts from donor advised funds. I know that a donor can't pay a pledge with a gift through their advised fund. Does anybody know where I can find the actual IRS language outlining this? We are trying to put together a donor-friendly way to let people know that although we appreciate their DAF gifts, we can't use them to pay off a pledge. Also, does anybody have a good work-around for this situation? Specifically, I'm wondering if it's common to write-off the remainder of a pledge, then apply the new gift to the same account/fund/project. Any additional information or suggestions would be helpful.

Hi Tricia - did you ever come up with a solution as we are running into the same issue.

This has been discussed a ton on the Fund Services Listserv (www.fundsvcs.org).  More and more places are using a pledge form which asks donor to specify how they intend to pay their pledge (personal funds, private foundation, donor advised fund, United Way, matching gift company, etc.) so you can properly record pledges. 

Anything not directly coming from personal funds shouldn't be recorded as a personal pledge.  To record a pledge from a private foundation or DAF a representative from the foundation will need to sign the pledge form.  Some private foundations may but rarely will a DAF so you can not record a pledge at all.  Once the money is received you can soft credit the original donor but can not use the payment to satisfy a personal pledge.

Some auditors do not even allow you to create a pledge then write it off when the DAF payment comes in so you have a placeholder for that "pledge".  You should check with your auditors on their preference.