Request for Comment from the IRS – Notice 2017-73 describes approaches that the Department of the Treasury and the Internal Revenue Service are considering to address certain issues regarding donor advised funds of sponsoring organizations and requests comments on those approaches.
In recent years, donor advised funds have become a popular alternative to private foundations and supporting organizations for many donors. Donor advised funds allow donors to receive some of the benefits associated with a family foundation without the administrative and tax obligations associated with operating a separate charitable entity. A donor advised fund is not a separate charitable entity for federal tax purposes. It is normally a type of program or fund offered by a public charity to facilitate charitable gifts by individual donors. Although the first donor advised fund was created in the 1930s, the use of donor advised funds has grown significantly in recent years. Despite this proliferation, the term “donor advised fund” was not defined in the Internal Revenue Code (the Code) or the Treasury Regulations until 2006, when new rules addressing donor advised funds were added to the Code under the Pension Protection Act of 2006 (the 2006 Act).
Donor Advised Funds must meet 3 requirements:
- The fund is separately identified by reference to contributions of a donor or donors (by naming the fund after a donor or otherwise attributing contributions to the donor).
- The fund is owned and controlled by a public charity (called the “sponsoring organization”).
- The donor − or any person appointed or designated by the donor (called a “donor advisor) − has, or reasonably expects to have, advisory privileges with respect to the distribution or investment of the assets of the separately identified fund or account by reason of the donor’s status as donor.
So, what’s the big to do – the ease of donating non-cash assets encourages people to give more generously to charity than they might otherwise because they get the benefit of a hefty tax deduction without a lot of hassle.
“The donor-advised funds have gotten very good at helping you essentially turn those assets into cash,” Palmer said. “That’s something that if you went down to your local homeless shelter, they would have no idea how to do that.”
But critics charge that companies offering these funds also manage to profit from them, in the form of fees assessed on the donor-advised fund accounts. Some people using donor-advised funds actually may be using them in lieu of creating foundations.