| Winter 2007 |
Nonprofit Advisor
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Legislation Puts Donor Advised Funds Under Scrutiny
The Pension Protection Act of 2006 contains provisions relating
to a type of 501(c)(3) that has been the source of much debate over
potential abuse: Donor Advised Funds (DAFs).
The Act now provides definitions as well as rules for contributing to and
making distributions from DAFs maintained by public charities. It establishes
new categories of disqualified persons and new excise taxes on "taxable
distributions" of DAFs and on prohibited benefits received by certain
disqualified persons.
The Act defines a DAF as a fund or account that:
- Is identified by reference to contributions of a donor or donors.
- Is owned and controlled by a sponsoring organization which is a 501(c)(3)
public charity.
- Assigns advisory rights to a donor or person
appointed by the donor with respect to investments or distributions.
Specifically excluded from the DAF definition is a fund or account that:
- Makes distributions only to a single identified organization or
governmental entity.
- Makes grants to individuals for travel, study or other similar purposes,
provided that the fund's structure and procedures for making awards meet
certain objectivity and non-discrimination criteria.
Further, the IRS can exempt a fund or account if it is advised by a
non-donor-controlled committee or if it benefits a single, identified charitable
purpose.
The Treasury Department is directed to carry out a study and report within
the next year on DAFs and to provide recommendations on some policy questions.
The resulting recommendations may suggest further constraints for these
organizations' operations or disallowance of deductibility of gifts to them.
It's important that nonprofits recognize that they may actually be
maintaining DAFs without having consciously recognized them as such. While
restricted accounts identified by the charitable purpose served will probably
not be covered by the new definitions established by this legislation,
organizations should examine any identified funds they maintain to determine
whether these provisions apply.
Editor's Note: Bober, Markey, Fedorovich
& Company frequently works with clients on matters such as
this. Please call your partner / manager contact if you would like assistance in this area.
The Nonprofit Advisor is produced quarterly by Bober, Markey, Fedorovich
& Company's Nonprofit Services Team. If you would like additional information about the services that we can provide to nonprofit organizations, please call or email our team leader, Lori A. Sheets, CPA at 330.762.9785 or
lsheets@bobermarkey.com.
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