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Friday, April 12, 2024

Feedback Shut on IRS’ Excise Tax Plan for Donor-Suggested Funds


What You Have to Know

  • Proposed IRS rules goal to stop the misuse of DAFs by implementing excise taxes on non-charitable distributions.
  • The proposal would levy a 20% excise tax on DAF sponsors and a 5% tax on fund managers for taxable distributions.
  • The rules develop and make clear what sorts of distributions set off the taxes.

The remark interval closed Thursday on long-awaited proposed IRS rules supposed to curb the potential misuse of donor-advised funds, an more and more widespread charitable giving automobile, by extra broadly and vigorously implementing the evaluation of excise taxes on distributions that don’t really find yourself going to charities.

Donor-advised funds, or DAFs, enable donors to put aside cash for charity now and get the tax break up entrance. They cash can then develop tax-free within the DAF earlier than it’s allotted to charitable causes down the road.

Summarized merely, the proposed guidelines are supposed to discourage taxpayers from placing cash into DAFs, letting it develop tax-free, after which later transferring the cash to a non-charitable entity through a taxable distribution.

In November, the Treasury Division and Inner Income Service launched the proposed rules and known as for feedback by Jan.16. The remark deadline was then prolonged in early January.

Underneath the proposal, a 20% excise tax could be imposed on a sponsoring group with respect to any taxable distribution from a donor-advised fund, and any fund supervisor that knowingly agrees to a taxable distribution would face a 5% excise tax.

As summarized in a detailed information by attorneys with Ropes & Grey, the brand new proposed rules tie again to the Pension Safety Act of 2006. They would typically apply to neighborhood foundations and different charitable organizations that preserve a number of donor-advised funds. There are additionally implications for others concerned with the funds, together with donors, donor-advisors, associated individuals and sure fund managers.

Because the attorneys clarify, a donor-advised fund is an account that’s maintained by a professional charitable group, which is technically known as the “sponsoring group.” Such DAFs are funded by contributions from particular person or company donors who retain advisory privileges with respect to the distribution or funding of quantities within the fund.

As a result of the funds are sponsored by public charities, together with the likes of Schwab Charitable and Constancy Charitable, they’ve traditionally been in a position to provide lots of the identical advantages as non-public foundations with out being topic to the restrictive non-public basis guidelines.

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