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Donor Advised Funds IRC §4966



John Dundon

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.

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I am enrolled with the United States Treasury Department to practice before the IRS, governed by rules stipulated in United States Treasury Circular 230. As a Federally Authorized Tax Practitioner and a tax appeals specialist my Enrolled Agent License #85353 is issued by the United States Treasury. With this license I work for U.S. taxpayers everywhere to resolve tax matters and de-escalate stress about taxes or tax disputes for individuals and corporations with federal and state issues.

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