BackgroundFor many donors, DAFs are a popular alternative to private foundations and supporting organizations. A DAF is a type of program or fund offered by a public charity (the sponsoring organization) to facilitate charitable gifts by donors. Donors create these funds with the sponsoring organization, make irrevocable contributions to such funds and then are allowed to provide nonbinding advice or recommendations to the sponsoring organization on further distributions to qualified charities and/or investments. According to a report by the National Philanthropic Trust, over $228 billion of assets as of 2022 was held in DAFs. DAFs allow donors to receive many of the benefits associated with a family foundation without the burdensome administrative and tax obligations associated with operating a separate charitable entity.Internal Revenue Code section 4966, which was enacted as part of the Pension Protection Act of 2006, along with section 4967, set forth the first set of statutory rules for DAFs. These Internal Revenue Code sections imposed an excise tax on taxable distributions and defined certain key terms, including taxable distributions, sponsoring organization, donor advised fund, fund manager and disqualified supporting organization.Proposed RegulationsSeventeen years later, the Treasury issued these proposed regulations under Internal Revenue Code section 4966 to address the definition of a DAF, a donor, a donor-advisor and a distribution.Donor. The regulations define a donor to include a person that makes a contribution to the fund unless such contributors are only public charities or governmental units. Sponsoring organizations should review their lists of donors to existing DAFs to determine if any fund would no longer be considered a DAF under these proposed regulations.Donor-Advisor. The regulations define a donor-advisor t

BackgroundOver the past several years, the U.S. Department of the Treasury has been preparing guidance concerning donor-advised funds (DAFs), which are accounts owned and controlled by public charities over which individual or corporate donors may exercise advisory privileges. In November, Treasury finally released the first of four pieces of guidance that it has told practitioners to expect. While this first release leaves some long-anticipated decisions for the future, it does offer helpful clarification, both for donors who may use DAFs as a philanthropic tool and for public charities that sponsor DAFs.The first release consists of proposed regulations under Internal Revenue Code Section 4966, which plays two roles. First, it defines DAFs and DAF-sponsoring organizations. Second, it imposes a punitive excise tax on DAF-sponsoring organizations (and sometimes their individual managers) that make distributions from DAFs to impermissible recipients. The proposed regulations address both aspects of Section 4966, and the key provisions are summarized below.Three more anticipated releases from Treasury are expected to include the following guidance:Under IRC Section 4967, imposing excise tax on distributions from DAFs that confer benefit on DAF donors or donor-advisors, their families, or their businesses.Under IRC Section 4958, imposing excise tax on so-called “excess benefit transactions” by public charities, specifically regarding excess benefit transactions involving DAFs.Concerning how contributions from DAFs to charities should be treated for purposes of the public support test for public charity status, set out in IRC Section 170(b)(1)(A)(vi).Treasury has indicated that a