posted on: Monday, April 09, 2007

Donor-advised funds and supporting organizations have consistently made it into the IRS’ ‘dirty dozen’ list of tax scams. And for a reason: regulations governing both charitable instruments are filled with loopholes that need to be addressed to curb abuses.

The IRS and the Department of the Treasury were charged by the Pension Protection Act of 2006 to conduct a study on donor-advised funds and supporting regulations. In its comments submitted to the IRS and the Department of the Treasury in April 9, NCRP identified disclosure, payout requirements and blatant opportunities for abuse and misuse as immediate issues that the government needs to address.

There is a clear need to:

• Require full and timely disclosure and reporting of distributions and investments for all donor-advised funds and supporting organizations;
• Subject donor-advised funds and supporting organizations to the excise tax, which could help support oversight and enforcement of accountability regulations by the IRS and state regulators;
• Require a 6 percent all-grants minimum annual spending requirement for all donor-advised funds and supporting organizations; and,
• Simplify the supporting organization structure by eliminating the Type III classification, through which most abuses occur.

These recommendations are necessary in ensuring accountability and transparency in the philanthropic sector, and to get more funding in the hands of nonprofits that address critical public needs.

View the complete text of NCRP’s comments.