Biden Administration’s Budget Includes Two Proposals to Tighten DAF/Private Foundation Rules

The Treasury Department’s Green Book – formally General Explanations of the Administration’s Fiscal Year 2024 Revenue Proposals – includes two modifications to the tax rules for donor advised funds and private foundations. The first is a proposal to prevent private foundations from counting grants to donor advised funds toward satisfying their annual payout requirement unless the DAF in turn distributes those funds relatively quickly (see pages 139-40). The specific proposal is:

The proposal would clarify that a distribution by a private foundation to a DAF is not a qualifying distribution unless (a) the DAF funds are expended as a qualifying distribution, which does not include a distribution to another DAF, by the end of the following taxable year and (b) the private foundation maintains adequate records or other evidence showing that the DAF has made a qualifying distribution within the required time frame.

This a repeat proposal, in that the Biden Administration also included it in its Fiscal Year 2023 revenue proposal.

The other proposal, which I believe is a new one for the Biden Administration, is to bar private foundations from counting payments of compensation or expense reimbursements to a disqualified person as counting toward the annual payout requirement (p. 141). The specific proposal is:

Under the proposal, paying compensation or reimbursing expenses by a private foundation to a disqualified person (other than a foundation manager of such private foundation who is not a member of the family of any substantial contributor) is not a qualifying distribution that satisfies the payout requirement. The self-dealing rule would not change, so a private foundation could still pay reasonable compensation to a disqualified person for personal services that are reasonable and necessary to carry out the foundation’s exempt purposes; these payments would just not count toward the payout requirement.

Hat Tip: EO Tax Journal.

Lloyd Mayer