Contemplated Legislation May Hurt Donor-Advised Funds

The Chronicle of Philanthropy (April 28, 2005) reported the results of its sixth annual survey of gift funds and suggested that proposed rules could reduce the popularity of donor-advised funds.  88 organizations, collectively holding more than 80,000 donor-advised funds, participated in the survey.

Currently, no legal definition of "donor-advised funds" exists.  According to a June 25, 2004 IRS Headliner, a donor-advised fund "typically is a separate fund or account established and maintained by a public charity to receive contributions from a single donor or a group of donors.  For payment to qualify as a completed gift to the charity, the charity must have ultimate authority over how the assets in each account are invested and distributed in furtherance of its exempt purposes.  While the donor may recommend charitable distributions from the account, the charity must be free to accept or reject the donor’s recommendations."

Lack of government oversight of donor-advised funds has led to allegations that such funds may easily be misused, often for the personal benefit of the donor.  IRS Commissioner Mark W. Everson, in a letter to the Senate Finance Committee, described how some taxpayers taking a deduction for charitable contributions made to their donor-advised funds failed to distribute much or any of the money.  To prevenut such problems, it has been proposed that donor-advised funds be subject to a 5 percent payout provision similar to the provision that applies to private foundations.

Perhaps more concerning to the nonprofit sector is the suggestion that the deduction for noncash gifts be reduced below the fair market value of an item.  Proponents of the reduction claim that donors of real estate, art and other noncash goods to their donor-advised funds are deducting more than such donations are worth.  Opponents claim that this is an enforcement issue that does not require further legislation.

Read the full Chronicle article here.

Additional Resources – Donor-Advised Funds in the SF Bay Area:

San Francisco Foundation, Giving FAQs
Marin Community Foundation, Donor Advised Funds
East Bay Community Foundation, Creating a Charitable Fund

Peninsula Community Foundation, Advised Family Foundation
Community Foundation Silicon Valley, Donor Advised Fund

Web Resources:

Gardner, Carton & Douglas Client Memorandum (June 2000):  Establishing a Donor-Advised Fund Program
The Council on Foundations:  COF Response to Proposal to Enact Standards for Operating Donor-Advised Funds In a Manner Consistent with the Requirements of Section 501(c)(3)
The Planned Giving Design Center:  Donor Advised Funds:  A Value-Added Tool for Financial Advisors (November 30, 2001)