Taxes on Taxable Distributions from Donor Advised Funds under Section 4966

The TEGE Exempt Organizations Council is submitting testimony on behalf of its members opposing the proposed regulations. They argue that the regulations are overly restrictive, unnecessarily expand the scope of excise taxes to non-DAFs, and create unnecessary complexity for the nonprofit sector.

Renaissance Charitable Foundation Inc., a sponsoring organization for Donor Advised Funds (DAFs), opposes the proposed regulations because they create confusion, increase administrative costs, and lack a sufficient transition period. The organization argues that the regulations overreach by broadening the definition of DAFs and requests the removal of the "Personal Investment Advisor" definition.

The Rose Community Foundation, a nonprofit organization serving the Denver/Boulder metropolitan area, is requesting the opportunity to provide testimony at a public hearing. Their testimony will focus on the impact of the proposed regulations on pooled and fiscally sponsored funds, philanthropy, and the nonprofit sector.

The Greater Toledo Community Foundation is requesting the opportunity to provide in-person testimony at a public hearing regarding proposed regulations on taxes for Donor Advised Funds. The organization intends to discuss the reclassification of funds, the definition of a "distribution," and the effective date of the regulations.

The North Texas Community Foundation is requesting to testify against the proposed regulations, arguing that taxing the fees and expenses of Donor Advised Fund (DAF) distributions would reduce the funds available for local charities. They highlight that investment advisors are not "warehousing" funds and that taxing professional fees (such as legal costs to defend donor intent) would negatively impact community support.

Sedreddine & Whoriskey, LLP, a law firm representing 501(c)(3) public charities, opposes the proposed regulations because they overly expand the definition of Donor Advised Funds (DAFs). They argue the rules could unnecessarily capture fiscal sponsorships and other restricted funds, which would hinder charitable programming, and they request specific exceptions and a prospective applicability date.

The New Venture Fund and the law firm Adler & Colvin are opposing the proposed regulations because they believe the expanded definition of Donor Advised Funds (DAFs) would sweep in and effectively destroy the fiscal sponsorship model. They argue that the regulations impose undue compliance burdens on charitable projects that rely on donor advice and reporting, and they recommend specific exemptions to protect these philanthropic structures.

A coalition of charitable and nonprofit organizations, including the American Association of Christian Schools and the Philanthropy Roundtable, expresses concern that the proposed regulations could create unintended disincentives for donors. They argue that the regulations might lead to a decrease in the use of Donor-Advised Funds (DAFs), ultimately resulting in less charitable giving for the communities they serve.

The TEGE Exempt Organizations Council, representing a community of tax practitioners, argues that the Proposed Regulations are overly restrictive, punitive, and lack sufficient statutory authority. They advocate for the withdrawal and re-proposal of the regulations, arguing they improperly expand the scope of DAF rules to the broader nonprofit sector and introduce unnecessary complexity and confusion.

The commenters, representing a coalition of nonprofit organizations and legal firms, urge the Treasury and IRS to explicitly exempt fiscal sponsorship from the definition of Donor Advised Funds (DAFs). They argue that the current proposed regulations are too broad and could inadvertently subject direct charitable programming to DAF rules, which would stifle innovation and the ability of projects to pay for goods, services, and staff.