Estate and Succession Planning
Dean Mead’s Estate and Succession Planning Department is one of the largest and most respected groups of estate planning attorneys in Florida. We are frequently…
The IRS has provided important guidance for donor advised funds (“DAFs”) in Notice 2017-73.
In the Notice, the IRS stated that it will allow a DAF to make a distribution to a charity that fulfills the donor’s pledge. Previously, the rules were unclear regarding whether such a distribution would be treated as providing more than an “incidental benefit” to the donor, a prohibited benefit as defined in I.R.C. § 4967 that would trigger penalty taxes on the donor and the fund manager. The Notice allows this type of distribution, provided that the sponsoring organization does not mention the pledge when it makes the distribution to the charity, although the charity may treat the distribution as fulfilling the pledge.
The Notice confirms that distributions from a DAF to pay for the donor’s tickets to a charity-sponsored event, on the other hand, will be treated as providing more than an “incidental benefit” to the donor and will trigger the penalty taxes.
The IRS is considering proposing regulations regarding the foregoing, and taxpayers may rely on these rules regarding “incidental benefit” provided in the Notice until additional guidance is issued.
In addition, the Notice states that the IRS is considering issuing regulations to provide that contributions from a DAF will be treated as being made by the donor that funds the DAF, solely for purposes of the donee charity’s public support test calculation. In other words, the DAF contribution will be limited to 2-percent of total support for purposes of the donee charity’s public support fraction. This rule would prevent circumvention of the 2-percent public support limit that may occur when a donor makes a distribution through a DAF rather than making the donation directly to the charity.
About the Author:
Jane Callahan is a shareholder in Dean Mead’s Orlando office. She represents a wide range of charities and other tax-exempt organizations, from their inception to handling tax and corporate issues. She represents clients in selecting the initial structure of the organization, such as Section 501(c)(3) charitable organizations, Section 501(c)(6) trade associations, Section 501(c)(4) social welfare organizations and a variety of other categories of tax-exempt organizations. She also assists in evaluating the tax-exempt purposes of the organization, qualifying it as tax-exempt and complying with laws governing tax-exempt organizations. She may be reached at jcallahan@www.deanmead.com.
