Community Foundation Comments on Guidance for Donor-Advised Funds, Supporting Organizations

Advantages to the Charitable Sector of Donor Advised Funds:

1. Donor Advised Funds build lasting endowments to benefit the community. Endowed donor advised funds are permanent. As such, they are a lasting source of grants to community nonprofits. As the aftermath of Hurricane Katrina so powerfully brought to light, government must work in partnership with the philanthropic sector to meet community needs. Donor advised funds are a permanent, ready source of philanthropy to help bridge the gap between what government can provide and what a community must provide to its neediest, most vulnerable populations.

2. Donor Advised Funds help engage and educate donors: Many donors know they want to help, but have no idea where to start. Donor Advised Funds at a Community Foundation are an easy, flexible, and friendly entree for such donors to the world of Community Engagement. A Community Foundation can educate and inform donors about community needs, point the way to the nonprofits meeting the most critical community needs, and thereby match donors with the causes they care about.

3. Community Foundations help to focus philanthropy from Donor Advised Funds to the advantage of the community. Nonprofits who are meeting critical community needs are recommended by community foundations to donors, thus ensuring such nonprofits' continued viability and good service to the community. Without this focus, philanthropy dollars scatter across innumerable nonprofits with little community impact.

4. Donor Advised Funds help to grow philanthropy. The ease and flexibility of donor advised funds helps to grow philanthropy and strengthen the community.

5. 98-99% of every dollar that flows into a Donor Advised Fund is available for grant making to nonprofits in the community. Because most community foundations currently charge between 1 - 2% per year on donor advised funds for administration, 98 - 99% of every dollar that flows into a pass through Donor Advised Fund is available for grant making. Given the relatively high costs of running a private foundation, including attorneys fees to create the corporate entity and obtain tax exempt status, accounting fees associated with filing the annual 990 IRS return, investment management fees, and general operating costs, most private foundations only manage to grant out between 60%-80% of the input dollars.

6. Community Foundations insure that all grants from donor advised funds go to bona fide nonprofits in good legal standing. The staff of the community foundation performs due diligence on each nonprofit grantee, thus ensuring their viability, mission, board governance, and effectiveness.

Advantages to Donors of Donor Advised Funds:

1. Donors can realize their philanthropic goals without creating their own separate 501(c)(3) organization. Donors can obtain tax deductions for their charitable contributions to the funds, use the community foundation's financial investment services, administrative back office capabilities, tax exempt status, and fiduciary oversight, all without starting their own 501(c)(3).

2. Donors can use the local knowledge and expertise of the community foundation to make good and sound grant making decisions. By virtue of the collaboration between donors and community foundations through donor advised funds, donors have ready access to information about community needs and the nonprofits meeting those needs. This often translates into donors using the community foundation as a resource to make good and sound grant making decisions. As such, donor advised funds can help focus philanthropy on the most pressing causes and community needs.

2. How should the amount and availability of a charitable contribution deduction for a transfer of assets to a donor advised fund or a supporting organization, and the tax-exempt status or foundation classification of the donee, be determined if:

3. What are the effects or the expected effects of the PPA provisions (including the § 4958 excess benefit transaction tax amendments applicable to donor advised funds and supporting organizations) on the practices and behavior of donors, donor advised funds, sponsoring organizations, supporting organizations and supported organizations?

1. The PPA should be amended to permit disbursements from donor advised funds for bona fide and reasonable fund raising expenses. The Pension Protection Act of 2006 impacted donor Advised Funds at Community Foundations in ways that inadvertently stifle charitable activities. While we fully support the notion that no donor advised fund should be used as a vehicle for private benefit or inurement, the PPA has resulted in some unintended consequences that will reduce or eliminate charitable giving.

For example, some donors who have established donor advised funds regularly conduct fund raising activities to benefit their funds and to increase their grant making capacity from the funds. The PPA has eliminated all distributions from donor advised funds to individuals and to for-profit companies that do not conduct charitable activities. This eliminates the ability to pay vendor expenses incurred during fund raising events. These donors are left with one of two choices -- Stop all fundraising activities and reduce their grant making ability, or start their own 501(c)(3) public charities. The PPA should be amended to permit disbursements from donor advised funds for bona fide and reasonable fund raising expenses.

2. The PPA should be amended to permit contributions from IRA's to Donor Advised Funds. The PPA does not currently permit distributions from IRA accounts to donor advised funds. This was a missed opportunity to grow philanthropy and strengthen nonprofits doing important work. Congress should allow donors to choose how they wish to direct charitable contributions from their own IRA's.

4. What would be appropriate payout requirements, and why, for:

There are only advantages, in that the perpetual existence of endowed donor advised funds provides a community safety net for nonprofits meeting critical community needs.