If any donor, donor advisor, or related party advises the sponsoring organization about making a distribution which results in a donor, donor advisor, or related party receiving (either directly or indirectly) a more than incidental benefit, then such benefit is a prohibited benefit. The tax on prohibited benefits applies to distributions occurring in tax years beginning after August 17, 2006.taxmap/pubs/p557-044.htm#TXMP599112d9
A donor advisor is any person appointed or designated by a donor to advise a sponsoring organization on the distribution or investment of amounts held in the donor's fund or account.taxmap/pubs/p557-044.htm#TXMP7afc0941
A related party includes any family member or 35% controlled entity. See the definition of those terms under Disqualified Person.taxmap/pubs/p557-044.htm#TXMP0dace6be
A tax of 125% of the benefit resulting from the distribution is imposed on both the party who advised as to the distribution (which might be a donor, donor advisor, or related party) and the party who received such benefit (which might be a donor, donor advisor, or related party). The advisor and the party who received the benefit are jointly and severally liable for the tax.taxmap/pubs/p557-044.htm#TXMP27653180
If a tax is imposed on a prohibited benefit received by a donor, donor advisor, or related person, a tax of 10% of the amount of the prohibited benefit is imposed on any fund manager who agreed to the distribution knowing that it would confer a prohibited benefit. Any fund manager who took part in the distribution and is liable for the tax must pay the tax. The maximum amount of tax on all fund managers for any one taxable distribution is $10,000. If more than one fund manager is liable for tax on a taxable distribution, all such managers are jointly and severally liable for the tax.taxmap/pubs/p557-044.htm#TXMP6264b243
If a person engaged in an excess benefit transaction and received a prohibited benefit for the same transaction, the person is taxed under section 4958, and no tax is imposed under section 4967 for a prohibited benefit.
For more information on taxes on prohibited benefits distributed from donor advised funds, see the Instructions for Form 4720.