Taxes on Taxable Distributions from Donor Advised Funds under Section 4966

The Sustainable Economies Law Center supports the proposed regulations but argues they fail to address the "legal fiction" of donor control over Donor Advised Funds (DAFs). They recommend establishing specific criteria and a "facts and circumstances" test to ensure that DAF sponsors exercise meaningful ownership and control, suggesting that funds with high donor control should be taxed and regulated like private foundations.

A professional investment advisory firm opposes the proposed regulation, arguing that it restricts donor autonomy and ignores the existing ethical and fiduciary frameworks that govern advisor-client relationships. They contend that the proposal creates unnecessary hurdles for donors and could diminish the effectiveness of donor-advised funds as a philanthropic tool.

The Mid-Nebraska Community Foundation opposes the proposed regulations if they impose unnecessary administrative burdens or requirements on community foundations that do not grant donors advisory privileges over investment management. They also advocate for expanding exceptions for disaster relief funds and ensuring that regulations remain narrowly focused on Donor Advised Funds rather than other types of charitable funds.

A former development officer for a large Donor Advised Fund (DAF) sponsor argues that the proposed regulations should address the fact that donor advisors often exert "directed" control rather than just "advised" influence. The commenter suggests that current DAF practices may be in systemic non-compliance with the law and encourages regulators to take a harder look at these issues.

John K. Graham, a tax attorney, argues that Example 3 of the Proposed Regulations is overbroad and creates an inappropriate chilling effect on organizations seeking the Single Identified Organization Exception. He suggests dropping Example 3 in favor of a rule that explicitly restricts distributions to internal use, arguing that board membership by a donor should not automatically disqualify a fund.