Industry awaits an answer on proposed donor-advised fund regulations

investmentnews.com:

Now that the comment period over the IRS’ proposed regulations for donor-advised funds has ended, the waiting game has begun – along with a whole lot of simmering criticism.

Last November, the Treasury Department and the Internal Revenue Service proposed regulations fundamentally redefining DAFs. The agencies accepted letters and comments from industry participants on their proposal until February 15 and will be reviewing those responses in coming months before making their final decisions likely later this year.

A DAF is a fund that encourages and accelerates charitable gift-giving by donors. Donors make irrevocable contributions to DAFs and then are allowed to provide nonbinding advice to the sponsoring organization on further distributions to qualified charities. As of 2022, more than $228 billion in assets were held in DAFs, according to the National Philanthropic Trust.

The proposed regulations impose a 20% excise tax on a sponsor that makes a taxable distribution – a distribution to a person or a group that’s not a qualified charity  – from a DAF, and a 5% excise tax on a fund manager who knowingly agrees to make a taxable distribution. They also address a number of definitional issues related to DAFs and drill down on the types of distributions that will in turn trigger those taxes.

More than 100 individuals and organizations submitted comments expressing their concerns over the proposed regulations, including Amy Freitag, president of the New York Community Trust, which created the first DAF in 1931 and has operated thousands of DAFs in the decades since.

Freitag lobbied against the new rules in a letter to Bloomberg late last month, saying she was concerned the rules will make DAFs more expensive and unwieldy