SECTION 3. CERTAIN

DISTRIBUTIONS FROM A DAF PROVIDING A MORE THAN INCIDENTAL BENEFIT TO A DONOR, DONOR ADVISOR, OR RELATED PERSON

Several commenters requested guidance on whether a distribution from a DAF to an organization described in § 501(c)(3) (a “charity”) that enables a donor, donor advisor, or related person under § 4958(f)(7) (collectively referred to in this notice as a “Donor/Advisor”) to attend or participate in an event results in the Donor/Advisor receiving a more than incidental benefit under § 4967.

Several commenters suggested that a distribution from a DAF should not be considered as conferring a more than incidental benefit as long as the amount of

the distribution from the DAF does not exceed the portion of the ticket cost that would be deductible under § 170 if paid by the Donor/Advisor directly and the Donor/Advisor separately pays for the nondeductible portion. For example, if a charity sells tickets to a charity-sponsored event for $1,000 per ticket and notifies purchasers that the fair market value of each ticket is $100, then (assuming that the requirements of § 170 are satisfied), a person who purchases a ticket for $1,000 may deduct up to $900 of the payment as a charitable contribution. These commenters suggested that a Donor/Advisor with respect to a DAF does not receive a more than incidental benefit if the Donor/Advisor pays the $100 ticket value and the sponsoring organization, on the advice of a Donor/Advisor, distributes $900 from the DAF to the charity to pay the rest of the cost of the ticket, because the Donor/ Advisor’s position is the same as if the Donor/Advisor had paid the full cost of the ticket ($1,000) and claimed a $900 charitable contribution deduction.

One commenter offered the contrary view that an arrangement under which a Donor/Advisor pays only the nondeductible portion of the cost of a ticket to a charity event and advises a DAF distribution to pay the deductible portion of the cost results in a more than incidental benefit, because but for the DAF distribution the Donor/Advisor would not have received the benefits that the ticket provides. Under this view, the $900 distribution from the DAF in the example relieves the Donor/Advisor from a financial obligation that the Donor/Advisor would otherwise incur in order to receive the same benefits.

The Treasury Department and the IRS currently agree that the relief of the Donor/Advisor’s obligation to pay the full price of a ticket to a charity-sponsored event can be considered a direct benefit to the Donor/Advisor that is more than incidental. Therefore, proposed regulations under § 4967 would, if finalized, provide that a distribution from a DAF pursuant to the advice of a Donor/Advisor that subsidizes the Donor/Advisor’s attendance or participation in a charity-sponsored event confers on the Donor/Advisor a more than incidental benefit under § 4967. The Treasury Department and the IRS do not currently agree that, for purposes of § 4967, a

distribution made by a sponsoring organization from a DAF to a charity upon advice of a Donor/Advisor should be analyzed the same as a hypothetical, direct contribution by the Donor/Advisor to the charity. A Donor/Advisor who wishes to receive goods or services (such as tickets to an event) offered by a charity in exchange for a contribution of a specified amount can make the contribution directly, without the involvement of a DAF.

The Treasury Department and the IRS recognize that a similar issue arises if a sponsoring organization makes a distribution from a DAF to a charity to pay, on behalf of a Donor/Advisor, the deductible portion of a membership fee charged by the charity, and the Donor/Advisor separately pays the nondeductible portion of the membership fee. Therefore, the Treasury Department and the IRS anticipate that the same analysis would apply to a case where the Donor/Advisor receives these types of membership benefits, so that the sponsoring organization cannot pay the deductible portion of the membership fee without conferring more than an incidental benefit on the Donor/Advisor.

The Treasury Department and the IRS recognize that a distribution that results in a more than incidental benefit under § 4967 may also result in an excess benefit under § 4958. The Treasury Department and the IRS anticipate that any proposed regulations would address the application of excise taxes in the case of a distribution that is potentially subject to tax under both §§ 4958 and 4967. See § 4967(b).