Proposed regulations: Excise taxes on taxable distributions from donor advised funds

The U.S. Treasury Department and IRS today released for publication in the Federal Register proposed regulations (REG-142338-07) under section 4966 regarding excise taxes on taxable distributions made by sponsoring organizations from donor advised funds (DAFs), and on the agreement of certain fund managers to the making of such distributions.

The proposed regulations [PDF 387 KB] (70 pages) are proposed to apply to tax years ending after the date the proposed regulations are published as final regulations in the Federal Register, but taxpayers may rely on the proposed regulations for tax years ending before that date.

The proposed regulations provide guidance with respect to disaster relief funds generally consistent with the guidance provided in section 5.01 of Notice 2006-109, but in certain instances the proposed regulations would modify such guidance. The preamble to the proposed regulations state that taxpayers may rely on the guidance in Notice 2006-109, or alternatively on the guidance in the proposed regulations, for tax years ending before the date the proposed regulations are published as final regulations in the Federal Register, including for periods prior to the date the proposed regulations are published in the Federal Register.  The extent of reliance is uncertain, however, given that organizations do not know whether final regulations will be issued prior to the end of their tax year.

Comments on the proposed regulations and requests for a public hearing are due by the date that is 60 days after the proposed regulations are published in the Federal Register, which is scheduled to be November 14, 2023.

Some charitable organizations (including community foundations) establish accounts to which donors may contribute and thereafter provide nonbinding advice or recommendations with regard to distributions from the account or the investment of assets in the account. These accounts are commonly referred to as donor advised funds. Sections 1231(a) of the Pension Protection Act of 2006 (PPA) added section 4966 to the Code, which imposes excise taxes on taxable distributions made by sponsoring organizations from a DAF, and on the agreement of certain fund managers to the making of such distributions.

The PPA also enacted other amendments to the Code regarding DAFs, including adding section 4967 to the Code, which imposes an excise tax on prohibited benefits resulting from distributions from DAFs; and amending section 4958 to add special rules relating to excess benefit transactions with DAFs. Guidance on both of these provisions is on the 2023-2024 Priority Guidance Plan. Read TaxNewsFlash

For more information, contact your usual KPMG tax professional or one of the following Washington National Tax professionals:

Ruth Madrigal | ruthmadrigal@kpmg.com

Preston Quesenberry | pquesenberry@kpmg.com