Special Rules for Donor-Advised Funds (DAFs)

(1) In the case of any donor-advised fund (DAF) described in Section 4966(d)(2), an

excess benefit transaction includes any grant, loan, compensation, or other similar payment from such fund to the donor, donor advisor, members of the donor’s or donor advisor’s families, and 35% controlled entities of such persons. See Section 4958(c)(2)(A).

(2) The amount of the excess benefit is the entire amount of the grant, loan,

compensation, or other similar payment. See Section 4958(c)(2)(B).

(3) “Other similar payments” include payments in the nature of a grant, loan, or

payment of compensation, such as an expense reimbursement. See Staff of Joint Committee on Taxation, Technical Explanation of H.R. 4, The “Pension Protection Act of 2006,” JCX-38-06 NO 13 at 347.

(4) Other similar payments don’t include, for example, payments pursuant to bona fide

sales or leases of property. See citation above. However, these transactions are still subject to the general rules of Section 4958:

a. As donors and donor advisors are disqualified persons with respect to DAFs,

they may be subject to Section 4958 taxes if they engage in excess benefit transactions as defined in Section 4958(c)(1). See Section 4958(f)(1)(E).

b. As investment advisors are disqualified persons with respect to sponsoring

organizations, they may be subject to Section 4958 taxes if they engage in excess benefit transactions as defined in Section 4958(c)(1). See Section 4958(f)(1)(F).

(5) Transactions that don’t meet the special rules for DAFs under Section 4958(c)(2)

are still subject to the general rules under Section 4958.

Note: See Section II.B.1 above for the definition of a disqualified person with respect to a DAF including the definition of a donor, donor advisor and investment advisor.

Note: See TG 3-7, IRC 501(c)(3) Exempt Purposes, Specialty Topics under IRC 170 and 163, for additional discussion of DAFs. TG 3-7 will be published in the future. For a list of all TGs, published and in process, see the cumulative list of Technical Guides located in TG 0 Technical Guide Overview, Exhibit III, starting on page 10.