IRS Issues Interim Guidance on Supporting Organizations and Donor Advised Funds
December 5, 2006
The Pension Protection Act (PPA) of 2006, enacted on August 17, included provisions tightening rules governing donor advised funds and supporting organizations. The Internal Revenue Service has issued a notice to provide taxpayers and organizations guidance in several areas before regulations are drafted.
Notice 2006-109 addresses four aspects of the new statutory requirements.
- The notice provides criteria for determining the classification of supporting organizations and whether a supporting organization or any supported organizations are controlled by disqualified persons. The PPA imposes limitations on grants by private foundations and donor advised funds to some types of supporting organizations.
- Cut-off dates and conditions are laid out for treating any grant, loan, compensation, or similar payment by a supporting organization to a substantial contributor or related person as an excess benefit transaction. The interim guidance provides a transition period for binding written contracts signed prior to August 17, 2006, and payments made by August 17, 2007. Under arrangements not covered by a binding contract, the same dates apply with the provision that any goods or services must be delivered by December 31, 2006.
- PPA imposes an excise tax on distributions from donor advised funds to natural persons. Employer-provided disaster relief funds are not considered donor advised funds if they meet certain requirements set out in Notice 2006-109.
Educational grants made pursuant to a commitment made prior to August 17, 2006, will not be subject to the excise tax if several conditions are met:
- the grant is reasonable, and was awarded on an objective and nondiscriminatory basis;
- the grant was not awarded to a donor, donor advisor, or a related person;
- written records of the grant existed before the cut-off date; and,
- there are no material changes to the grant or its conditions, such as a required reapplication.
The IRS requests comments on this notice and suggestions for future guidance on donor advised funds and supporting organizations. Comments on Notice 2006-109 should be submitted by February 1, 2007.
A summary of the statutory changes enacted as part of the PPA relating to donor advised funds and supporting organizations was posted on the NACUBO Web site in September.
NACUBO Contact: Mary Bachinger, director, tax policy, 202.861.2581
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