What is a Pass-Through Contribution?

Pass-Through Contribution

Share This...

Pass-Through Contribution

A pass-through contribution is a type of donation in which the donor’s funds are given to an intermediary organization, which then passes the funds through to the final beneficiary. The intermediary organization does not use these funds for its own operations, but simply acts as a vehicle to transfer the funds from the donor to the final recipient.

This kind of arrangement can be seen in various contexts, but it’s often found in political fundraising and in charitable giving.

For example, in the political context, an individual might donate to a political action committee (PAC), which then distributes the funds to various political candidates or causes. The PAC, in this case, serves as the intermediary that passes through the contributions from the donor to the final recipients.

In the context of charitable giving, a community foundation might accept pass-through contributions from donors and distribute those funds to local charities.

One key aspect of pass-through contributions is that they may still be eligible for tax deductions, depending on the legal and tax regulations of the country, so long as the final beneficiary is a qualified organization. The intermediary organization usually provides the donor with the necessary documentation to claim a tax deduction.

Keep in mind that laws and regulations surrounding pass-through contributions and their tax implications can be complex and vary from place to place, so it’s a good idea to consult with a tax advisor or legal expert when considering this type of donation.

Example of a Pass-Through Contribution

Here’s an example of a pass-through contribution in a charitable context:

Imagine a donor, Mr. Smith, who wants to support various local charities in his town, but he doesn’t have the time or expertise to assess the legitimacy and effectiveness of each organization. However, there’s a well-established community foundation in his town which specializes in supporting local charities.

Mr. Smith decides to donate $10,000 to this community foundation with the stipulation that the money be used to support local charities that align with his values. The foundation accepts his donation and, in turn, identifies suitable local charities to receive the funds. It then distributes the $10,000 as pass-through contributions to these organizations.

For example, the community foundation might distribute $2,000 to a local food bank, $3,000 to a homeless shelter, $2,500 to an after-school program for at-risk youth, and $2,500 to a local environmental conservation group.

In this case, Mr. Smith’s donation is a pass-through contribution. The community foundation simply acts as an intermediary to facilitate Mr. Smith’s support of local charities. Mr. Smith would then receive a donation receipt from the community foundation for his $10,000 contribution, which he could potentially use to claim a tax deduction, depending on his jurisdiction’s tax laws.

Other Posts You'll Like...

Want to Pass as Fast as Possible?

(and avoid failing sections?)

Watch one of our free "Study Hacks" trainings for a free walkthrough of the SuperfastCPA study methods that have helped so many candidates pass their sections faster and avoid failing scores...