On December 4, 2017, the Treasury Department and Internal Revenue Service (IRS) issued Notice 2017-73, new proposed guidance for donor advised funds (DAFs). The public has the opportunity to comment on the following proposed rules:

1. Charity Events and Membership Fees. Under the proposed rules, a DAF would be prohibited from making a distribution to pay for the deductible portion of a ticket that would enable a donor, donor advisor or related person (collectively, a “Donor/Advisor”) to attend a charity event. Similarly, a DAF would be prohibited from making a distribution to pay the deductible portion of a Donor/Advisor’s membership fee charged by a charity (e.g., a museum or zoo). Under both scenarios, the DAF’s subsidization of the Donor/Advisor’s ticket or membership expense would constitute “more than in incidental benefit” for purposes of section 4967 of the Internal Revenue Code (Code) and therefore could result in excise tax liability.
2. Satisfaction of Donor Pledges. Under the proposed rules, a DAF would be permitted to make a distribution that satisfies a Donor/Advisor’s legally binding charitable pledge if the if the following requirements are satisfied:
   1. The sponsoring organization makes no reference to the pledge when making the distribution from the DAF to the charity.
   2. No Donor/Advisor receives, directly or indirectly, any other benefit that is more than incidental on account of the DAF distribution.
   3. The Donor/Advisor does not claim a charitable deduction for the distribution, even if the charity erroneously sends the Donor/Advisor a receipt in connection with the distribution.

   If the above criteria are met, then the distribution would not result in more than an incidental benefit to the Donor/Advisor for purposes of section 4967 of the Code.

3. Public Support Treatment of DAF Distributions. The public support rules for qualifying as a public charity rather than a private charity would be changed to “prevent the use of DAFs to circumvent the excise tax rules applicable to private foundations.” A charity receiving a distribution from a DAF would be required to treat:
   1. A sponsoring public charity’s distribution from a DAF as coming from the donor (or donors) that funded the DAF, and not from the sponsoring organization.
   2. All anonymous contributions received (including DAF distributions for which donor information is not provided by the sponsoring public charity) as being made by one person.
   3. Distributions from a sponsoring public charity as public support without limitation only if the sponsoring organization specifies that the distribution is not from a DAF or states that no Donor/Advisor advised the distribution.

This proposed rule would make it more difficult for charities that receive significant funding from DAFs to maintain their public support status, since the distributions would be treated as contributions from private individuals rather than a public charity.

The Treasury and IRS have asked for comments on the proposed rules described above. In addition, they have asked for comments on how private foundations utilize DAFs, which suggests that additional guidance in this area may be forthcoming. Written comments must be submitted by March 5, 2018, to Notice.Comments@irscounsel.treas.gov (include Notice 2017-73 in the subject line).