Issue

Donor Advised Funds require special reporting on Form 990 and special care in navigating the related rules.

Situation

Saltwater Christian College (SCC) is a private college exempt under Internal Revenue Code section 501(c)(3) and section 170(b)(1)(A)(ii).  They are required to file Form 990 annually.  In a conversation with DCC’s CFO, he asks, “I think we have some funds that the IRS would consider donor advised funds.  How do we report those?”

We tell them that donor advised funds are defined in the Form 990 Glossary and that reporting is generally on Schedule D (Form 990), Part I.

Form 990, Part IV, Line 6 asks: Did the organization maintain any donor advised funds or any similar funds or accounts for which donors have the right to provide advice on the distribution or investment of amounts in such funds or accounts? If “Yes,” complete Schedule D, Part I

Charities that hold DAFs report these funds on Schedule D (Form 990), Part I.  The section requires reporting on DAFs as to:

  • Total number at end of year
  • Aggregate value of contributions to (during year)
  • Aggregate value of grants from (during year)
  • Aggregate value at end of year
  • Did the organization inform all donors and donor advisors in writing that the assets held in donor advised funds are the organization’s property, subject to the organization’s exclusive legal control?
  • Did the organization inform all grantees, donors, and donor advisors in writing that grant funds can be used only for charitable purposes and not for the benefit of the donor or donor advisor, or for any other purpose conferring impermissible private benefit?

Rules

From Form 990 Glossary:

Donor advised fund

A fund or account:

1.     That is separately identified by reference to contributions of a donor or donors;

2.     That is owned and controlled by a sponsoring organization; and

3.     For which the donor or donor advisor has or reasonably expects to have advisory privileges in the distribution or investment of amounts held in the donor advised funds or accounts because of the donor’s status as a donor.

A donor advised fund does not include any fund or account:

1.     That makes distributions only to a single identified organization or governmental entity, or

2.     In which a donor or donor advisor gives advice about which individuals receive grants for travel, study, or other similar purposes, if:

a.     The donor or donor advisor’s advisory privileges are performed exclusively by such person in his or her capacity as a committee member in which all of the committee members are appointed by the sponsoring organization;

b.     No combination of donors or donor advisors (and related persons as defined below) directly or indirectly control the committee; and

c.     All grants from the fund or account are awarded on an objective and nondiscriminatory basis following a procedure approved in advance by the board of directors of the sponsoring organization. The procedure must be designed to ensure that all grants meet the requirements of section 4945(g)(1), (2), or (3); or

3.     That the IRS exempts from being treated as a donor advised fund because either such fund or account is advised by a committee not directly or indirectly controlled by the donor or donor advisor or such fund benefits a single identified charitable purpose. For example, see Section 5.01 of Notice 2006-109, 2006-51 I.R.B. 1121, and any future related guidance.

Bottom Line

  • Funds that allow “advisement” should be carefully reviewed in light of the various donor advised fund rules and regulations.
  • Advanced planning is involved in tracking the data necessary to properly complete Schedule D (Form 990) Part I.
  • You should be aware restrictions on donors, their families, and donor advisors.
  • Communication with donors and other is necessary in order to properly account for and report the activities of donor advised funds.

Specific questions? Email Dave Moja.

The information provided herein presents general information and should not be relied on as accounting, tax, or legal advice when analyzing and resolving a specific tax issue. If you have specific questions regarding a particular fact situation, please consult with competent accounting, tax, and/or legal counsel about the facts and laws that apply.