07 Nov Donor Advised Funds IRC §4966
In my last post about how year end tax planning starts with reassessing one’s commitment to charitable donations I mentioned that my Mom donated her appreciated shares of Exon Mobile to a Donor Advised Fund (DAF).
Many readers had questions about what a DAF is and the mechanics of donating to one. So much so I was compelled to follow up in this post.
A DAF, often referred to as charitable gift fund or philanthropic fund, generally allows for a charitable contribution without making a final decision regarding how funds will be used at the time of the donation.
Statutorily, a “donor advised fund” (DAF) means a fund or account that is owned and controlled by a sponsoring organization and separately identified by reference to contributions of a donor. The donor has advisory privileges with respect to the distribution or investment of amounts held in such fund or account as per IRC §4966(d)(2)(A)
A Sponsoring Organizations owning a DAF’s should be aware of the following charitable giving tax Issues:
- It is described in section 170(c)
- It is NOT a private foundation described in section 509(a)
- It accepts & acknowledges donations which are immediately tax-deductible to the donor
DAF’s are useful because they tend to gap a timing difference allowing a donor to potentially be more generous now with funds used for charitable purposes in future years.
DAF’s Appeal To Donors:
- with a high income year, but distributed charitable intent
- who plan to fund many small charitable gifts with proceeds from securities
- whose planned contributions are insufficient to justify the costs of a private foundation
- who wish to be relieved of the administration of a private foundation
- wishing to advise the fund regarding distributions
- the sponsoring organization ultimately controls investment and distribution decisions.
- if the sponsor of the DAF doesn’t have control over the funds the donation might not qualify for a charitable contribution.
Feel welcome to contact me for a drill down.