SECTION 2. BACKGROUND

Section 4966(d)(2) defines a DAF as a fund or account owned and controlled by a sponsoring organization, which is separately identified by reference to contributions of a donor or donors, and with respect to which the donor, or any person appointed or designated by such donor (donor advisor), has, or reasonably expects to have, advisory privileges with respect to the distribution or investment of the funds. Section 4966(d)(2)(B) excepts from the definition of DAF any fund or account which makes distributions only to a single identified organization or governmental entity, or certain committeeadvised funds that make grants to individuals for travel, study, or other similar purposes.

Section 4966(d)(1) defines a sponsoring organization as an organization that: (1) is described in § 170(c) (other than a governmental unit described in § 170(c)(1), and without regard to the requirement under § 170(c)(2)(A) that the organization be organized in the United States); (2) is not a

private foundation (as defined in § 509(a)); and (3) maintains one or more DAFs.

Under § 170(f)(18), a deduction otherwise allowable under § 170(a) for a contribution to a DAF is allowed only if:

(A) the sponsoring organization is de scribed in § 170(c)(2) and is not a “type III supporting organization,” as defined in § 4943(f)(5)(A) (other than a functionally integrated type III supporting organization as defined in § 4943(f)(5)(B)); and (B) the taxpayer obtains a contempora neous written acknowledgment from the sponsoring organization of the DAF that the sponsoring organization has exclusive legal control over the assets contributed. Section 4966 imposes an excise tax on each taxable distribution from a DAF. This excise tax is paid by the sponsoring organization. A separate excise tax, paid by fund managers, is imposed on the agreement of any fund manager to the making of a distribution, knowing that it is a taxable distribution. In general, under § 4966(c), a taxable distribution is any distribution from a DAF to any natural person, or to any other person if (i) the distribution is for any purpose not specified in § 170(c)(2)(B), or (ii) the sponsoring organization does not exercise expenditure responsibility with respect to such distribution in accordance with § 4945(h).

Under § 4966(c)(2), a taxable distribution does not include a distribution from a DAF to: (1) any organization described in § 170(b)(1)(A) (other than a disqualified supporting organization as defined in § 4966(d)(4)); (2) the sponsoring organization of such DAF; or (3) any other DAF.

Section 4967 imposes an excise tax on the advice that a person described in § 4967(d) provides regarding a distribution from a DAF that results in such person or any other person described in § 4967(d) receiving, directly or indirectly, a more than incidental benefit. Section 4967(d) refers to § 4958(f)(7), which describes a donor, donor advisor, a family member of a donor or donor advisor, or a 35-percent controlled entity of such persons as defined in § 4958(f)(3) (with the modifications described in § 4958(f)(7)(C)). This excise tax is paid by any person who advises the sponsoring organization as to the distribution or who receives the prohibited ben

efit. A separate excise tax, paid by fund managers, is imposed on the agreement of any fund manager of the sponsoring organization to the making of the distribution, knowing that it would confer a prohibited benefit. Section 4967(b) provides that, with respect to any distribution, no tax shall be imposed under § 4967 if a tax has been imposed under § 4958.

Section 4958 imposes an excise tax on any “excess benefit transaction.” Section 4958(c)(1) defines an excess benefit transaction generally as any transaction in which an economic benefit is provided by an applicable tax-exempt organization (including a § 501(c)(3) sponsoring organization of a DAF) directly or indirectly to or for the use of a disqualified person (including in the case of any transaction that involves a DAF a donor, donor advisor, or a person related to a donor or donor advisor, as described in § 4958(f)(7)), if the value of the economic benefit provided exceeds the value of the consideration received. In general, the term “excess benefit” refers to the amount by which the value of the economic benefit provided exceeds the value of the consideration received. Section 4958(c)(2) provides that, in the case of any DAF, an excess benefit transaction also includes any grant, loan, compensation, or other similar payment from the DAF to a donor, donor advisor, or related person. For purposes of this special rule for DAFs, the excess benefit includes the full amount of the grant, loan, compensation, or other similar payment. This excise tax under § 4958 is paid by the disqualified person with respect to the transaction. A separate excise tax, paid by organization managers, is imposed on the participation of any organization manager in the transaction, knowing that it is an excess benefit transaction, unless such participation is not willful and is due to reasonable cause.

Notice 2006–109, 2006–2 C.B. 1121, provided interim guidance on several DAF issues, including criteria for determining whether a supporting organization is a disqualified supporting organization, exclusion of certain employer-sponsored disaster relief funds from the definition of DAF, and transitional rules for educational grants. The notice also requested comments regarding suggestions for future guidance on DAFs.

Bulletin No. 2017–51 563 December 18, 2017

Notice 2007–21, 2007–1 C.B. 611, requested comments in connection with a study conducted by the Treasury Department and the IRS on the organization and operation of DAFs and supporting organizations, as required by § 1226 of the Pension Protection Act of 2006, Pub. L. No. 109–280, 120 Stat. 780 (2006). In response to these notices, the Treasury Department and the IRS received a number of comments requesting guidance on various DAF issues. Several commenters indicated that guidance would be particularly helpful regarding whether § 4967 prohibits a donor, donor advisor, or person related to a donor or donor advisor of a DAF from advising a DAF distribution to pay the cost of any such person’s attendance or participation in a charitysponsored event or to fulfill the person’s charitable pledge. The commenters noted that some DAF sponsoring organizations prohibit such DAF distributions, but others do not. One commenter expressed concern about improper use of DAFs by persons seeking to avoid application of the private foundation rules under Chapter 42 of the Code.

While the Treasury Department and the IRS continue to develop proposed regulations that would, if finalized, comprehensively address donor advised funds, this notice is intended to provide interim guidance on these specific issues and to solicit additional comments in anticipation of the issuance of further guidance.