IRS Issues Proposed Regulations on Donor-Advised Funds

The Treasury Department has introduced long-awaited proposed regulations governing donor-advised funds (DAFs), responding to the surge in contributions that reached over $85 billion last year. These regulations aim to provide oversight for the fast-growing form of charitable giving, a major feature of the philanthropic landscape. The proposed IRS rules, while avoiding certain contentious issues, notably prohibit the use of DAFs to support lobbying and campaign activities.

Critics argue that the popularity of DAFs, particularly associated with financial service companies like Fidelity, Schwab, and Vanguard, has allowed these entities to collect fees on amassed funds, diverting money from immediate charitable use. Other scrutinized uses of DAFs include acting as intermediaries for anonymous support of causes and foundations making grants to DAFs to fulfill federal asset distribution requirements, a practice not required of DAFs.

The proposed regulations attempt to define foundational elements like what qualifies as a fund, a donor, and a charitable distribution to avoid excise tax. A significant feature is the prohibition on using DAF grants for lobbying or campaign-related activities, sparking questions about the potential impact on nonprofits’ engagement in political and legislative spheres. Notably, the regulations lack clarity on how organizations should track such grants.

The IRS also introduced an “anti-abuse” rule aiming to prevent disguising grants through intermediary funds. Despite previous unsuccessful attempts in Congress to limit DAF durations and align them with foundation payout requirements, the proposed regulations address foundational issues, prompting inquiries into how they might influence the overall structure of philanthropic practices.

Sax will continue to update you on proposed regulations that may impact your organization. For questions, please contact Adam Holzberg at [email protected].



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