Taxes on Taxable Distributions from Donor Advised Funds under Section 4966

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.

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 Finance, Administration & Operations Group for Community Foundations (FAOG), representing over 300 community foundations, opposes the proposed regulations due to the administrative burdens and disproportionate impact they would have on community foundations. They argue that the rules would impede philanthropy and volunteer engagement, and they request either a delay in the effective date or a prospective application.

Vanguard Charitable, a sponsor of donor-advised funds (DAFs), supports the proposed regulations but requests specific modifications to ensure practical implementation. They advocate for a non-retroactive applicability date, a clearer definition of "distribution" that excludes reasonable DAF-specific administrative expenses, and specific guidance on grant-related expenses and expenditure responsibility.

The Marin Community Foundation opposes the proposed regulations because they would create significant operational burdens and negative impacts on their personal investment advisor program. They specifically argue against the expanded definition of "donor advisors" to include personal investment advisors and request a transition period to avoid automatic excess benefit transactions.

The American College of Trust and Estate Counsel (ACTEC) submitted comments regarding proposed regulations on excise taxes for donor-advised funds (DAFs). While they generally support the regulations' goal of encouraging philanthropy, they recommend several specific modifications to clarify definitions of "distributions," "separately identified" funds, and "advisory privileges" to ensure consistency with existing tax laws and to prevent unintended administrative burdens or penalties on charitable organizations.

Servant Foundation, a 501(c)(3) organization, supports the proposed regulations but requests specific clarifications and improvements. They argue that reasonable expenses for maintaining donated assets should not be considered taxable distributions and seek explicit guidance that funds established exclusively for a public charity's operating programs are not considered donor-advised funds (DAFs).

Ensemble Capital Management, an investment advisory firm, argues that the proposed rules incorrectly categorize investment advisors as "donor-advisors" because they do not hold distribution privileges and are already subject to SEC fiduciary duties. They contend that the new regulations would hinder capital growth for charitable purposes and request a transition period for the rules to take effect.

The Venn Foundation, a 501(c)(3) public charity and DAF sponsoring organization, argues that the proposed rules create confusion by removing established standards for Program-Related Investments (PRIs) and suggests incorporating existing PRI definitions for clarity. They also oppose the proposed retroactive applicability date, requesting a future applicability date and grandfathering provisions to allow for a smooth transition and to preserve existing charitable impacts.

The American Bar Association Section of Taxation is submitting a series of recommendations to be included in the 2026-2027 Priority Guidance Plan. They argue that these specific guidance items will reduce controversy, lessen the burden on taxpayers and the IRS, and promote sound tax administration.