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

Remember:

  1. the sponsoring organization ultimately controls investment and distribution decisions.
  2. if the sponsor of the DAF doesn’t have control over the funds the donation might not qualify for a charitable contribution.

John R. Dundon, EA [720-234-1177, John@JohnRDundon.com]
Enrolled with the United States Department of Treasury to Practice before the IRS (Enrolled Agent # 85353). Under contract with the IRS as a Certified Individual Taxpayer Identification Number (ITIN) Acceptance Agent. A Federally Authorized Tax Practitioner (USC 31 Section 330 + IRC 7525a.3.A) regulated under US Treasury Cir. 230.

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Posted in Charitable Contribution, Donor Advised Fund

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