CPA Comments on Guidance for Donor-Advised Funds, Supporting Organizations

 

I have heard that if contributions are given through a donor advised fund to a charitable organization that the contribution would be considered a donation from the public. Although I can see this occurring from a technical point of view, I believe the IRS will look through the transaction to the original donor in determining the extent of contributions from a disqualified individual when determining public charity status. This discussion originated through a conversation with a newly formed nonprofit organization that has set up a donor advised fund so that the contributions would be shown as if they were from the public. As I prepare the application for exemption and the eventual subsequent response to the advance ruling I am compelled to report these contributions as being from a disqualified person.

 

Indeed, a gift from a public organization to another organization is counted as part of the public support for purposes of that test under Section 170 of the Code. This is true when it comes from a Donor Advised Fund as well, since the fund is a component fund of a public supported organization and the owner of that fund and controlling entity of that fund is the publicly supported organization. The fact that it was a recommendation by someone who is otherwise a disqualified person for the new charity is not relevant to the qualification of this gift for purposes of the public support test.

Having said that, we are cognizant of the appearance that is created if the majority of gifts received by the new entity are from a Donor Advised Fund through recommendations by someone who is otherwise a disqualified person. For that reason, we are fairly careful to tell people that they should not rely on the contributions from their Donor Advised Fund to sustain the public support test for a new entity, long term. We generally consider it sufficient during the period in which the new organization is growing its capacity for seeking public support through gifts from other people who are not disqualified persons but would not be supportive of a long-term plan that simply uses the Donor Advised Fund to help create a public organization which would otherwise be qualified as a private foundation but for the Donor Advised Fund contributions.

Thus, I would not suggest that you report that such gifts are from a disqualified person because they truly are not. I also though would not suggest that you claim public support status for the new entity unless there really is an expectation that that will be obtained by contributions in addition to the Donor Advised Fund though that may be a sustaining source at the outset.

John Laudadio and Associates, PA

 

Certified Public Accountants

 

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Coral Springs, FL 33071

 

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Email: John@Laudadio.com