According to the National Philanthropic Trust, a Donor-Advised Fund (DAF) is a charitable account held by a public 501(c)3 entity that receives donations from an individual. Donors can receive an immediate tax deduction based on their donation and then advise on how the funds are granted going forward.
Current Proposed Regulations (NEW & UPDATED) - Dec. 2023
On November 13th, the U.S. Department of the Treasury (Treasury) released the first in what is expected to be a series of long-awaited regulations interpreting the statute that codifies DAFs, which Congress enacted in the Pension Protection Act of 2006.
The proposed regulations are related to 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 and 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.
Key areas include definitions of DAFs, roles and responsibilities of sponsoring organizations and fund managers, and exceptions to DAF definitions. The proposed regulations also address concerns about potential abuses and provide guidelines to ensure compliance while maintaining the benefits of DAFs for charitable purposes. General highlights of the proposed regulations include:
- Definition of DAFs and Sponsoring Organizations: Specifies the criteria for a fund to be considered a DAF and defines a sponsoring organization.
- Definition of ‘Donor’ and ‘Donor-Advisor’: The proposed regulations define “donor” as any person or entity, other than a public charity or governmental entity, that contributes to a fund at a sponsoring organization.
- Exceptions to DAF Definitions: Certain funds or accounts, such as those making distributions only to a single identified organization or for certain scholarships, are excluded from the DAF definition.
Regulation Resources & Analysis
The Forum has gathered several documents and reviews for PSOs and foundations that provide detailed, comprehensive analysis and insights into the November 13th proposed regulations:
- Treasury Releases Proposed Donor Advised Fund Regulations Addressing Taxable Distributions and Key Definitions - Choate
- IRS Issues Proposed Regulations on Donor-Advised Funds - Patterson Belknap
- IRS Releases First Installment of Long-Awaited Donor Advised Fund Regulations - Ropes & Gray
- IRS, Treasury Release Proposed Regulations on Donor-Advised Funds - ArentFox Schiff
- Proposed Regulations Define Donor-Advised Funds - BakerHostetler
- Treasury and the IRS Issue Proposed Regulations on Donor-Advised Funds - Miller & Chevalier
- IRS Issues Proposed Regulations Governing Donor-Advised Funds - Steptoe
The Proposed Regulations state that regulations under section 4966 will apply to the tax year in which they are published as final regulations in the Federal Register. Interested parties can submit comments and requests for a public hearing through January 16, 2024.
In June 2021, Senators Grassley (R-IA) and King (I-ME) introduced the Accelerating Charitable Efforts (ACE) Act, a bill that seeks to impose legislative mandates on donor-advised funds (DAFs) and private foundations.
The Forum recognizes the important role that DAFs play in charitable giving, and also understands the significance of having a discussion about various ways to best enhance giving. The Forum will work with our members, national partners, and experts in the field to take a deep dive on the proposed mandates in this bill and possible alternatives by gathering valuable feedback and examining critical data. The Forum believes this approach will allow us to do the following:
- Provide an opportunity for Forum members and sector-related organizations to analyze the proposed mandates through a racial equity lens;
- Provide an opportunity for Forum members and sector-related organizations to learn from each other and better understand the current challenges around building consensus on sector reforms;
- Identify potential actions to address those challenges; and
- Develop recommendations and/or legislative alternatives based on those discussions.
On May 24, 2021, the Forum sent a letter signed by 81 charitable sector leaders from across the country to Congressional leaders and staff about the need to involve the broad charitable sector in discussions about legislation that impacts the sector. We will continue to highlight the importance of sector inclusion in these talks in our communications on Capitol Hill. The 92 PSOs in the Forum’s network represent more than 7,000 foundations and other philanthropic organizations across the country, and their voices and involvement are vital in these discussions.
While the Accelerating Charitable Efforts Act was born of out of a proposal that did not include input from the broader sector, the Forum is committed to doing our due diligence, engaging the field, and finding consensus on common sense and equitable solutions.
See additional resources on DAFs: