The Council on Foundations wrote, on behalf of our members, to the U.S. Department of Treasury and Internal Revenue Service (IRS) in response to Notice 2017-73—which was released on Dec. 4, 2017, and requested comments on the application of penalties with respect to donor advised funds (DAFs) in three distinct situations where a Donor/Advisor:
- Recommends a distribution from his/her DAF to a grantee organization to support a charitable event or fundraiser, or membership fees, where the donor advisor receives more than an incidental benefit;
- Recommends a distribution from his/her DAF to satisfy a pledge that he/she made to a qualified charitable organization (donee); and
- Uses a DAF as an intermediary to contribute money to a small charity to avoid “tipping” the public charity into private foundation status, which may occur in cases of large gifts from individuals.
The notice describes the current position and approaches the agencies are considering to address these situations, which they see as problematic.
The Council’s comments highlight our concerns about an overbroad approach where perfectly appropriate distributions from a DAF could be subject to penalty, and note our preference for a narrowly-tailored approach to target only the particular situations which Treasury and IRS find troubling (with specific recommendations for how to achieve that).