Karl Mill of the Mill Law Center and I will be presenting a Continuing Legal Education / Continuing Professional Education (CLE/CPE) webinar for Strafford on the recently proposed donor advised fund (DAF) regulations. You can watch live on Tuesday, February 6, 2024, at 10 am to 11:30 am PST / 1 pm to 2:30 pm EST. Register here.

Outline

1. Overview of DAFs pre-regulations
2. The role of DAFs from a giving and estate planning perspective
3. How the regulations would change considerations for donors
4. The single identified organization DAF exception
5. How the regulations would change permissible DAF distributions
6. Possible future regulations and laws

Benefits

The panel will discuss these and other key issues:

• What constitutes a DAF?
• Utilizing a DAF as an estate planning and charitable giving tool
• Sponsoring and managing a DAF for charities
• What a single identified organization fund (not a DAF) can and can’t do
• What are the types of sponsoring organizations and considerations of each?
• What are the main issues raised by critics of the regulations?
• What may future DAF regulations cover?

You can find the proposed regulations in the Notice of Proposed Rulemaking published on November 14, 2023.

This document contains proposed regulations regarding excise taxes on taxable distributions made by a sponsoring organization from a donor advised fund (DAF), and on the agreement of certain fund managers to the making of such distributions. The proposed regulations would provide guidance regarding DAFs and taxable distributions. The proposed regulations generally would apply to certain organizations, including community foundations and other charitable organizations, that maintain one or more DAFs, and to other persons involved with the DAFs, including donors, donor-advisors, related persons, and certain fund managers.

lt’s important to note the proposed regulations are likely to get a number of comments prior to the February 15, 2024 extended deadline and may subsequently be modified to address some of the expressed issues and concerns. The following are some of the specific areas in which the Treasury Department and the IRS are seeking public comments:

• factors that would be relevant in determining whether a fund or account is separately identified by reference to contributions of a donor or donors
• additional circumstances in which application of the following bright-line rule is not warranted: unless the special rule for officers, directors, and employees of a sponsoring organization applies, if a donor to a fund or account is the sole person with advisory privileges with respect to a fund or account, the advisory privileges would be deemed to be by reason of the donor’s status as a donor
• circumstances in which a gift agreement or advisory rights retained by a donor could create a DAF
• additional circumstances that would indicate that a personal investment advisor is properly viewed as providing services to the sponsoring organization as a whole, rather than providing services to the DAF, as well as additional circumstances in which a personal investment advisor should not be considered a donor-advisor
• what constitutes a significant contributor for purposes of the following exception: If an appointee or related person is not a significant contributor to a fund or account at the time of appointment but becomes one shortly afterwards, the IRS may find that the person has advisory privileges based on the facts and circumstances
• proposed advisory committee exceptions, including additional circumstances in which advisory privileges arising from advisory committees should not result in the creation of a DAF
• whether and in what circumstances additional types of exceptions are warranted to allow multiple-donor funds or accounts to be excluded from the definition of DAF
• whether other funds should be excepted from the definition of DAF using the discretionary authority given to Treasury
• whether additional guidance is needed on situations in which a fund or account is established at a public charity and the written agreement establishing the fund or account provides that the contributed amounts can only be used to support programs within that public charity, but the donor retains advisory privileges with respect to the public charity’s use or investment of some or all of the funds
• whether additional guidance is needed to prevent avoidance of the employer-related scholarship rules or to address any potential private benefit arising from employer-related scholarship programs
• how to identify a broad-based membership organization described in section 501(c)(4), including factors such as the organization’s number of members, criteria for selecting members, membership rights, and geographic coverage
• whether and under what circumstances other organizations, such as section 501(c)(5) and 501(c)(6) organizations, use similar types of committee-advised scholarship funds and whether the exception should be extended to those organizations, recognizing that section 501(c)(4) organizations are formed to promote social welfare whereas section 501(c)(5) and section 501(c)(6) organizations are formed to further different purposes
• how to further distinguish distributions from investments
• whether other entities should be included in the definition of disqualified supporting organization
• the modification regarding expenditure responsibility in the purchase of goods and services
• whether guidance is needed regarding a fund manager’s reliance on professional advice