An excise tax is imposed on a sponsoring organization for each taxable distribution it makes from a donor advised fund. An excise tax is also imposed on any fund manager of the sponsoring organization who agreed to the making of a distribution, knowing that it is a taxable distribution. taxmap/pubs/p557-043.htm#en_us_publink1000200467
A taxable distribution is any distribution from a donor advised fund to any natural person or to any other person if:
- The distribution is for any purpose other than one specified in section 170(c)(2)(B), or
- The sponsoring organization maintaining the donor advised fund does not exercise expenditure responsibility with respect to the distribution in accordance with section 4945(h).
However, a taxable distribution does not include a distribution from a donor advised fund to:
- Any organization described in section 170(b)(1)(A) (other than a disqualified supporting organization),
- The sponsoring organization of the donor advised fund, or
- Any other donor advised fund.
The tax on taxable distributions applies to distributions occurring in tax years beginning after August 17, 2006.taxmap/pubs/p557-043.htm#en_us_publink1000200468
A sponsoring organization is a section170(c) organization that is not a government organization (as referred to in section 170(c)(1) and (2)(A)) or a private foundation and maintains one or more donor advised funds.taxmap/pubs/p557-043.htm#en_us_publink1000200469
A donor advised fund is a fund or account:
- Which is separately identified by reference to contributions of a donor or donors,
- Which is owned and controlled by a sponsoring organization, and
- For which the donor (or any person appointed or designated by the donor) has or expects to have advisory privileges concerning the distribution or investment of the funds held in the donor advised funds or accounts because of the donor's status as a donor.
- A fund or account that makes distributions only to a single identified organization or governmental entity, or
- Any fund or account for a person described in 3 above that gives advice about which individuals receive grants for travel, study, or similar purposes, if:
- The person's advisory privileges are performed exclusively by such person in their capacity as a committee member of which all the committee members are appointed by the sponsoring organization.
- No combination of persons with advisory privileges, described in 3 above, or persons related to those in 3 above directly or indirectly control the committee, or
- All grants from the fund or account are awarded on an objective and nondiscriminatory basis according to 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).
A disqualified supporting organization includes a Type III supporting organization that is not functionally integrated and any Type I, Type II, or functionally integrated Type III supporting organization where the donor or donor advisor (and any related parties) directly or indirectly controls a supported organization of the supporting organization.taxmap/pubs/p557-043.htm#en_us_publink1000200472
A tax of 20% of the amount of each taxable distribution is imposed on the sponsoring organization. taxmap/pubs/p557-043.htm#en_us_publink1000200473
If a tax is imposed on a taxable distribution of the sponsoring organization, a tax of 5% of the distribution will be imposed on any fund manager who agreed to the distribution knowing that it was a taxable distribution. 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.
For more information on the tax on taxable distributions of sponsoring organizations, see the Instructions for Form 4720.