IRS Warns About Donor-Advised Funds

Lawyer News

The Internal Revenue Service has issued a guide sheet for organizations that maintain donor-advised funds to help safeguard against abuses.

Donor-advised funds allow organizations to make contributions that are generally treated similarly to contributions to charities, providing them with greater tax benefits than donations to private foundations. The guide sheet includes a series of questions to establish whether the organization qualifies as a sponsoring organization.

In an explanation accompanying the guide sheet, the IRS describes several court precedents, including a 2006 case, New Dynamics Foundation v. United States, in which the court determined that the foundation did not qualify for a tax exemption because it permitted donors to use funds to serve their private interests.

"Donor-advised funds are intended to accomplish charitable purposes rather than to generate fees from securities trading for investment advisors," said the IRS explanation. "If the arrangement produces too much private benefit to the financial company, the organization does not qualify for exemption."


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