SECTION 5. PREVENTING

ATTEMPTS TO USE A DAF TO AVOID “PUBLIC SUPPORT” LIMITATIONS

Publicly supported organizations under § 170(b)(1)(A)(vi) normally receive a substantial part of their support from governmental units and from direct or indirect contributions from the public. In determining whether an organization qualifies as “publicly supported” during any period, the organization generally may treat contributions (including grants) from a person as support from the general public (public support) only to the extent that such person’s total contributions to the organization during the period do not exceed 2 percent of the organization’s total support during the period (the 2-percent public support limitation). For this purpose, all contributions made by an individual, trust, or corporation and by any person or persons standing in a relationship to the individual, trust, or corporation that is described in § 4946(a)(1)(C) through (G) and the related regulations are treated as made by one person. See § 1.170A– 9(f)(6)(i) of the Income Tax Regulations. The 2-percent public support limitation does not apply to contributions received by a donee organization from a § 170(b) (1)(A)(vi) organization, except to the extent that the contributions represent amounts earmarked by a donor to the § 170(b)(1)(A)(vi) organization as being

Most commenters favored allowing distributions from DAFs to fulfill a Donor/Advisor’s charitable pledge. A few commenters expressed concern that requiring a sponsoring organization to determine, before making a DAF distribution, whether a Donor/Advisor made a legally binding pledge may unduly complicate charitable giving. In particular, these commenters noted the difficulty inherent in determining whether a commitment identified as a “pledge” is legally enforceable under state law or merely an indication of charitable intent. One commenter stated that whether a given pledge is legally enforceable under state law often turns on factual details that can be difficult for the sponsoring organization to ascertain. A few commenters noted that determining whether a pledge is legally enforceable is impractical and also places an undue administrative burden on the IRS. These commenters also suggested that distributions from DAFs to charitable organizations should be encouraged and that allowing satisfaction of Donor/Advisors’ charitable pledges facilitates the giving process.

The Treasury Department and the IRS currently agree with those commenters who suggested that it is difficult for sponsoring organizations to differentiate between a legally enforceable pledge by an individual to a third-party charity and a mere expression of charitable intent. The Treasury Department and the IRS are of the view that, in the context of DAFs, the determination of whether an individual’s charitable pledge is legally binding is best left to the distributee charity, which has knowledge of the facts surrounding the pledge. Accordingly, to facilitate distributions from DAFs to charities, the Treasury Department and the IRS are considering proposed regulations under § 4967 that would, if finalized, provide that distributions from a DAF to a charity will not be considered to result in a more than incidental benefit to a Donor/Advisor under § 4967 merely because the Donor/Advisor has made a charitable pledge to the same charity (regardless of whether the charity treats the distribution as satisfying the pledge), provided that the sponsoring or

ganization makes no reference to the existence of any individual’s pledge when making the DAF distribution. Specifically, it is anticipated that under this approach a distribution from a DAF to a charity to which a Donor/Advisor has made a charitable pledge (whether or not enforceable under local law) will not be considered to result in a more than incidental benefit to the Donor/Advisor if the following requirements are satisfied:

(1) the sponsoring organization makes no

reference to the existence of a charitable pledge when making the DAF distribution; (2) no Donor/Advisor receives, directly

or indirectly, any other benefit that is more than incidental (as discussed in this notice and as further defined in future proposed regulations) on account of the DAF distribution; and (3) a Donor/Advisor does not attempt to

claim a charitable contribution deduction under § 170(a) with respect to the DAF distribution, even if the distributee charity erroneously sends the Donor/Advisor a written acknowledgment in accordance with § 170(f)(8) with respect to the DAF distribution. Because the relationship between a private foundation and its disqualified persons typically is much closer than the relationship between a DAF sponsoring organization and its Donor/Advisors, this special rule regarding certain charitable pledges would apply for purposes of § 4967 only. The principles discussed in this section 4 would not be intended to affect the tax treatment of any item under any provision of the Code other than § 4967. ¹

For example, assume that charity Z, an organization described in §§ 501(c)(3) and 170(b)(1)(A)(vi), holds an annual fundraising drive, and in response to the annual fundraising solicitation, individual B promises to contribute $1,000x to Z. B has advisory privileges with respect to a DAF and advises that the sponsoring organization distribute $1,000x from the DAF to Z. The sponsoring organization makes the advised distribution. Assume further that in its transmittal letter to Z, the

1 See, e.g., Revenue Ruling 81–110, 1981–1 C.B. 479 (January 1, 1981) (a payment by a third party to a charitable organization that explicitly is made to pay the legally enforceable pledge of a donor is treated as a gift from the third party to the donor and then a charitable contribution from the donor to the organization); Treas. Reg. § 53.4941(d)–2(f)(1).

Bulletin No. 2017–51 565 December 18, 2017

for, or for the benefit of, the donee organization. See § 1.170A–9(f)(6)(v).

Similarly, publicly supported organizations under § 509(a)(2) cannot treat contributions from a substantial contributor as public support, but contributions from an organization described in § 170(b)(1)(A) (other than clauses (vii) and (viii)) count as public support except to the extent that the contributions received by a donee organization represent amounts earmarked by a donor to the § 170(b)(1)(A) organization as being for, or for the benefit of, a particular recipient. See § 1.509(a)–3(j).

Because of the contributions they receive from the general public, DAF sponsoring organizations typically qualify as § 170(b)(1)(A)(vi) organizations whose distributions from DAFs would ordinarily be counted as public support without limitation to the distributee charity. The Treasury Department and the IRS are aware that some donors and distributee charities seek to use DAF sponsoring organizations as intermediaries. Rather than making contributions, which would be subject to the 2-percent public support limitation, directly to charities, these donors make contributions to DAFs maintained by sponsoring organizations and then advise the sponsoring organizations to make distributions from the DAFs to the distributee charities. In light of the potential for abuse, the Treasury Department and the IRS are considering treating, solely for purposes of determining whether the distributee charity qualifies as publicly supported, a distribution from a DAF as an indirect contribution from the donor (or donors) that funded the DAF rather than as a contribution from the sponsoring organization. Such treatment would better reflect the degree to which the distributee charity receives broad support from a representative number of persons.

Public support is defined in the regulations under §§ 1.170A–9(f) and 1.509(a)–3. The Treasury Department and the IRS are considering proposing changes to these regulations to prevent the use of DAFs to circumvent the private foundation rules and excise taxes imposed by the Code by advising distributions from a DAF to a charity. It is currently anticipated that any proposed changes to these regulations would provide that a donee organization, for purposes of

determining its amount of public support, must treat:

(1) a sponsoring organization’s distribu tion from a DAF as coming from the donor (or donors) that funded the DAF rather than from the sponsoring organization; (2) all anonymous contributions received

(including a DAF distribution for which the sponsoring organization fails to identify the donor that funded the DAF) as being made by one person; and (3) distributions from a sponsoring orga nization as public support without limitation only if the sponsoring organization specifies that the distribution is not from a DAF or states that no donor or donor advisor advised the distribution. The Treasury Department and the IRS recognize that a donee organization may need to obtain additional information from the sponsoring organization in order to determine its amount of public support. However, the Treasury Department and the IRS note that this additional information would only be needed if the donee organization intends to treat a distribution from a sponsoring organization as public support.