I have seen some 501(c)(3) organizations advertise that 100% of public donations go directly to the charitable cause, while the operating expenses of the organization are covered by private donors. It would seem to me that the money given by the private donors is earmarked for operating expenses, and thus would not be deductible. Is this the case?
No. Administrative costs of a charitable organization are recognized, appropriately, as charitable expenses by the IRS, and contributions to cover administrative costs are just as deductible as any other contributions Money, of course, is fungible and this kind of distinction is pretty arbitrary, but if it attracts some contributors for program who don’t want to pay the costs of overhead, it may not be all bad. The overall operation is charitable and all contributions are deductible.