The IRS has issued new guidelines and explanatory materials to be used in processing applications for exemption under IRC 501(c)(3) submitted by "sponsoring organizations" that maintain donor-advised funds.
A donor-advised fund is a charitable giving vehicle administered by a third party and created for the purpose of managing charitable donations on behalf of an organization, family, or individual. A donor-advised fund offers the opportunity to create an easy-to-establish, low cost, flexible vehicle for charitable giving as an alternative to direct giving or creating a private foundation. Donors enjoy administrative convenience, cost savings and tax advantages by conducting their grant making through the fund.
IRC 4966(d)(1) defines a “sponsoring organization” as an organization that (1) is described in IRC 170(c), e.g., a charitable organization, including domestic fraternal organizations, war veterans organizations, and cemetery companies; (2) is not a private foundation (as defined in IRC 509(a)); and (3) maintains one or more donor-advised funds.
This new guildeline is separated into three (3) parts to help organizations determine the likelihood of obtaining exemption as a 501(c)(3) sponsoring organization:
PART I is directed toward identifying whether the organization is a sponsoring organization because it maintains one or more donor-advised funds. If the answer to questions 1 through 3 is “Yes” and the answer to question 4a is No, the organization is a sponsoring organization to which this guide sheet applies. Otherwise, the organization is not a qualifying sponsoring organization, and the guide sheet does not apply.
PART II asks a number of questions that are directed to whether an organization is in a position to ensure the accomplishment of charitable purposes, including whether it has ultimate authority over its accounts or funds.
PART III asks a number of questions that are directed to concerns regarding prohibited benefits, including private benefits that are inconsistent with exempt status. An organization will be denied exemption if it fails to establish that it satisfies all the requirements for exemption, including furthering private interests instead of public interests.
Visit the IRS webpage for Donor-Advised Funds for more information or to access their new guidelines.
