Comment from Forefront (Illinois)

February 15, 2024 VIA ELECTRONIC SUBMISSION The Honorable Lily BatchelderThe Honorable Daniel Werfel Assistant Secretary (Tax Policy)Commissioner U.S. Department of the TreasuryInternal Revenue Service 1500 Pennsylvania Avenue NW1111 Constitution Avenue NW Washington, D.C. 20220Washington, D.C. 20224 Mr. William Paul Acting Chief Counsel and Deputy Chief Counsel (Technical) Internal Revenue Service 1111 Constitution Avenue NW Washington, D.C. 20224 Re: Comments to Notice of Proposed Rulemaking, RIN 1545-BI33 Dear Assistant Secretary Batchelder, Commissioner Werfel, and Chief Counsel Paul, As Illinois’ only statewide association representing foundations, nonprofits, and advisors, Forefront represents 11% of the economy in our state. We welcome this opportunity to submit formal Comments regarding Proposed Rule “Taxes on Taxable Distributions from Donor Advised Funds under Section 4966” published by the IRS and Treasury on 11/14/2023. Forefront’s ~1,000 members include foundations that will be directly affected by this rulemaking, as well as operating nonprofits that benefit from grantmaking via donor advised funds. First and foremost, please note that Forefront works in partnership with other organizations that also submitted comment, and we urge you to carefully consider their recommendations. Such organizations include but may not be limited to the following: 1.United Philanthropy Forum 2.National Council of Nonprofits 3.Council on Foundations 4.Jewish Federation 5.American Institute of CPAs 6.DAF Research Collaborative, which just release new research that may inform rules 7.Maryland Nonprofits, League of California Community Foundations, and other associations of grant-makers and operating nonprofits Second, we recognize that DAFs are here to stay. We should identify sound public policy recommendations that will leverage DAFs to improve equity, well-being, and quality of life in our communities. Treasury officials expressed learning more about who benefits from payouts at a November 2022 meeting with philanthropic and nonprofit leaders at which Forefront was present. Thus, the Federal government should develop equity principles around DAF regulation. For example, how can we collect and disaggregate related race/ethnicity, gender, and economic data about DAFs (e.g., who does and does not donate to DAFs? Who does and does not benefit from DAF spending?). Third, in the proposed regulations, please pay special attention to the following areas: •Scholarship Funds. Specifically, scholarship funds that are used to repay tuition, fees, and expenses after graduation (aka loan repayment) should be clearly exempted in the same manner in which traditional scholarship funds are exempted. See related United Philanthropy Forum recommendation. •Disaster Relief Funds. The disaster relief fund exemption should be expanded to include funds that support relief/recovery for events that do not receive an official declaration by a government entity. •Endowed DAFs. Consider that endowed DAFs will behave differently re: spend down rules by nature of their intended permanency. •Fiscally Sponsored Funds. See United Philanthropy Forum recommendation that fiscal sponsorship arrangements are not DAFs, and the echoes from Maryland Nonprofits, National Council of Nonprofits, and others. •Funds for a Single Charity. See Maryland Nonprofits comments, as well as AICPA comment and recommendation re: “A Fund Established at a Single Charity (for the Sole Benefit of that Organization) Over Which a Donor Has Advisory Privileges with Respect to Use and/or Investment of Funds Should Not be Considered a DAF.” •Donor Advisor. See United Philanthropy Forum recommendation to narrow or eliminate the rule that would include a donor’s personal investment advisor within the definition of donor advisor. •Lobbying Prohibition. Clarify rules and required communications; confusion persists, particularly when federal and state rules around lobbying vary from one another greatly, which is true in Illinois. Forefront will vigorously defend the engagement of charitable nonprofits in nonpartisan public education and advocacy efforts. Such activities are a permissible and essential part of our democracy and civic engagement. Related rules should be consider the boundaries that are already applicable to nonprofits and uphold their vital role in public discourse and social change. •Effective Date. New regulations should go into effect no sooner than two tax years following their adoption so the field may adapt and prepare. Respectfully submitted, Holly Ambeuhl, MSW Director of Policy and Government Affairs