Donor-Advised Funds: IRS Proposes Rule Changes through IRS Notice 2017-73
IRS Notice 2017-73 (the “Notice”) provides advance notice of U.S. Treasury and IRS’ proposed rule changes for Donor-Advised Funds (“DAF’s”). Comments are requested by March 5, 2018. The Notice represents a significant departure from the rules governing the use of DAF’s by donors, sponsoring organizations, charities and their tax advisors. The Notice addresses the following three questions:
- Charitable Pledges: May DAF distributions be used to pay a donors’ charitable pledges without triggering penalty taxes under Section 4967?
- Charity Event Tickets and Memberships: May DAF distributions be used to pay the charitable portion of tickets to attend charity-sponsored events, which are used by its donors, advisors and members of their extended families, without triggering penalty taxes under Section 4967?
- DAF Grants and Public Support Test: May a donee charity use DAF distributions to demonstrate that is has substantial public support and should not be classified as a private foundation? How will “anonymous contributions” be treated to determine if the donee charity has substantial public support?
Additional Comments Requested: In addition to requesting comments on the above issues, the Treasury Department and IRS would like comments on the following:
- How do private foundations use DAFs to support their purposes?
- Whether a time limit should be placed on a distribution from a DAF to a qualifying charity for grants made by a private foundation to a DAF to satisfy the private foundation’s qualifying distribution requirement?
- What other considerations should be taken into account for DAFs with multiple unrelated donors with regard to the public support proposal change?
- What methods could be used to streamline recordkeeping by DAFs and public charities for the public support proposal change?
The Notice is detailed and provides examples to explain the background and considerations of its proposed changes. To understand its full intent, the Notice should be read in its entirety. To view a more in-depth analysis by Mr. Robinson on this topic, click here.