Donor-Advised Funds:Tax Shelters or Vehicles for Good?

Kelly Shipp SimoneDeputy General Counsel

November 15, 2012

Agenda

• Dirty Dozen• Government Studies• Other Studies• Practical considerations• Outlook

Dirty Dozen Tax Scams

• DAFs included in annual listing from 2005-2007"The IRS continues to observe the use of tax-exempt organizations to improperly shield income or assets from taxation. This can occur when a taxpayer moves assets or income to a tax-exempt supporting organization or donor-advised fund but maintains control over the assets or income…”

• Removed after PPA defined and regulated DAFs

Government Studies

• Treasury Study– Mandated by Congress in 2006– Released December 2011– Based on 2006 data

• Congressional Research Service Analysis– Released in July 2012– Based on 2008 data

Comparing the DataTreasury Study CRS Analysis

Data Year 2006 2008

# of Sponsoring Organizations

2398 1818

# of DAFs 160,000 181,000

DAF assets $31.1 billion $29.5

Average # of DAFs per sponsoring org

85 100

DAF assets $31.1 billion $29.5 billion

Comparing the DataTreasury Study CRS Analysis

Average aggregate DAF payout from all sponsoring organizations (SPORGS)

9.3% 13.1%

Median (all SPORGS) 0.6% 6.1%

25 percentile (all SPORGS)

0.0% 0.0%

Average aggregate DAF payout from CFs

9.3% ---

Median from CF DAFs 7.0% ---

25 percentile for CF DAFs 1.9% ---

Observations

• Payout rates are focused on grants only• CRS Report notes that SPORGS with one

DAF tend to payout less than those with many accounts

• CRS Report made observations about behavior of individual DAFs based on reports of SPORGS with 1 DAF

Policy Considerations

• Treasury Study – Same charitable deduction to DAF as

contributions to other public charities– Premature to recommend a distribution

requirement for DAFs– Donors advisory privileges do not make an

incomplete gift

• CRS Analysis– Questioned Treasury Study conclusions

Other Studies

• Chronicle of Philanthropy• National Philanthropic Trust• CF Insights – Do More Than Grow Report

Practical Considerations

• Accurate Form 990 reporting on donor-advised funds is essential!

• Schedule D, Part I

Practical Considerations

• Core Form 990 Form

Practical Considerations

• Inactive funds policy– Define an inactive fund– Procedures

• Attempts to contact• Payout from fund or close fund

– Exceptions

QUESTIONS

Resources

Council on Foundations:legal@cof.org Kelly Simone, kelly.simone@cof.org, 703-879-0716

Full Study Names: December 2011 Treasury Study: Report to Congress on Supporting Organizations and Donor Advised Funds

July 11, 2012 CRS Analysis: An Analysis of Charitable Giving and Donor Advised Funds