Private foundation or donor-advised fund contributions to 501(c)(3) Organizations for benefit of disqualified person/donor

Private foundation or donor-advised fund contributions to 501(c)(3) Organizations for benefit of disqualified person/donor

Forum topic posted in Forum on 20 May 2010| 4 comments
audience: | last updated: 20 May 2010
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Joined: 05/20/2010
Points: 60
From the perspective of a 501(c)(3) organization, looking for information as to how to deal with efforts by private foundations or donor-advised funds to make contributions (assume for this purpose in amounts in excess of $500) to the organization in payment of any of the following for the benefit of a 'disqualified person' of the private foundation or the donor of the donor-advised fund: a. membership dues; b. the total price of admission to an event c. the deductible portion of the price of admission to an event I have found that the private foundation or donor-advised fund refuses to accept the required disclosure statement form the Organization because, in describing the benefits to be received in exchange for the quid pro quo contribution, the statement evidences "self-dealing" in violation of Section 4941(d) of the US Tax Code. I have also found that so-called "waivers" of benefits by the disqualified person or donor are merely for 'show' and the benefits are frequently claimed in awkward circumstances, with result that the disclosure statement saying that there are no goods or services in exchange for the contribution is not correct. Complimentary benefits just render the disclosure statement incorrect. The only 'solution' that I have developed is a policy not to accept contributions from private foundations or donor-advised funds when the contributions relate to membership dues or the price of admission to an event. I would appreciate any thoughts that anyone may have on this issue. Thank you. -- George J. Martin, Jr. E-Mail Address: George0607@gmail.com Phone: 646-662-2676 LinkedIn Profile: http://www.linkedin.com/in/georgejmartinjr

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Joined: 03/25/2002
Points: 15
Private foundation or donor-advised fund contributions to 501(c)
The Pension Protection Act placed the new responsibilities on private foundations, donor advised funds and recipient charities in this area to prevent private benefits being realized by donors. At NPT, with each grant that it is recommended, the donor must acknowledge explicitly that they are not receiving any private benefit for their gift. Furthermore, our grant staff conduct additional due diligence in those circumstances -- particularly grants to schools, galas and other fundraising events -- to ensure the donor does not accrue any private benefit. In fact, NPT prohibited these types charitable split interest grants, where the donor would pay the non-tax deductible portion our of pocket, three years prior to the PPA's passage. Despite these safeguards, it is incumbent, and now required as per the PPA, that the recipient charity also prevents a donor from receiving such benefits. Otherwise the recipient charity will be penalized for allowing this grant to be accepted. Unfortunately, there will always be a very small percentage of donors who will try to get around these rules. We have found that managing donor's expectation up front helps prevent many of these situations -- and the awkward conversations with the donors -- from occurring. By explaining that to attend a gala or similar event the donor should write a personal check versus recommending a grant from their donor advised fund is often sufficient -- particularly when we explain the consequences/penalities to the donor, as well as to our charity, and the charity they intend to support if they attempt to enage in this transaction. I hope this you find this post helpful. Andrew W. Hastings, Vice President, Business Development, National Philanthropic Trust. www.nptrust.org
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Joined: 05/20/2010
Points: 60
Private foundation or donor-advised fund contributions to 501(c)
Mr. Hastings - Thank you so much for replying to my post. I replied to the reply of Sue Mammersmith as well (and had assumed that it (and this reply as well) would be posted so everyone could see it). In your reply you mention that under the PPA the recipient charity must prevent the donor of a donor-advised fund from receiving benefits. I am not aware of such an obligation. I am aware that the recipient charity must issue a disclosure statement that accurately states what goods or services will be provided in exchange for the contribution and the recipient charity's good faith estimate of the value of such goods or services. I am also of the view that the recipient charity may not issue a statement that no goods or services will be provided if, in fact, the recipient charity does not intend to enforce any purported waiver of the right to such goods or services by the donor. However, if the recipient charity, after issuing in good faith an acknowledgment/disclosure statement that stated that no goods or services were to be provided, is later confronted by a demand by the donor to enter the event and the recipient charity should decide not to have an ugly confrontation at the event and should then permit the donor to enter the event, I am not aware of any provision of the PPA that would render the action by the recipient charity a violation of the PPA. Again, any help you may be able to provide will be welcome. Thank you again for your reply.
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Joined: 10/31/2006
Points: 15
PF/DAF Distributions with benefit for Donor
George - The following is the language we utilize in our Donor Advised Fund agreements: Distributions may not be used to discharge or satisfy a legally enforceable pledge or financial obligation. The Donor or other individuals may not receive any goods or services, or any other tangible benefit or privilege in return for a distribution from the Fund. I assume that all community foundation donor advised funds would have a similar policy on making these types of distributions, and private foundations should. You may wish to adopt a similar policy against accepting distributions for which there is personal benefit; have a frank conversation with the donor when the situation arises; or you can state the benefit received on the receipt given to the donor. Check out publication 526 from www.irs.gov in the section "Contributions from which you Benefit" and also Revenue Procedures 90-12 and 92-49 regarding "token items" given to donors.
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Joined: 05/20/2010
Points: 60
PF/DAF Distributions with benefit for Donor
Sue - Thank you so much for taking the time to reply to my post. I am very familiar with the rules and penalties applicable to private foundations and donor-advised funds and their respective disqualified persons and donors. I am also familiar with the rules applicable to the recipient charity relating to its acknowledgment obligations, particularly with respect to disclosing whether any goods or services have been provided in connection with the contribution. When our recipient charity either returns the check from a donor-advised fund (because the donor-advised fund states in its transmittal of the check that cashing the check is a certification that no goods or services have been provided) or sends an acknowledgment that specifies the goods or services (together with our good fasith estimate of their value) that are to be provided, we are confronted with either (A) a denial of any intention to accept the goods or services (which denial is, in fact, often a mere "wink and nod" since the donors often show up demanding the right to attend the function as if no denial had ever been given) or (B) a statement that we are just not familiar with the practices of other very prominent charities that have no difficulty finding a way to accommodate such contributions. I have concluded that we cannot issue acknowledgments that state no goods or services will be provided unless the denial or waiver of a right to goods or services will, in fact, be enforced. I postd my comment to make sure that I was not missing something that other more prominent and prestigeous charities had discovered...i.e., a way to accept such contributions without violating the rules as I understnd them. I think that you have answered my concern by telling me, in effect, I am not missing anything and perhaps these other charities are missing something or our donors are not being entirely honest in portraying the manner in which other charities deal with the same problem. Thank you again. George
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