Page 45 - December 2018 | Cleveland Metropolitan Bar Journal

volunteering, economic development, and/ the ticket and a larger, deductible portion them to put those passions into practice in ways
or policy advocacy? that is the charitable contribution. The Notice they never thought possible? If so, we have the
Different structures pair well with each of these states that it is inappropriate for the donor to power to have a much more positive impact on
goals and may be used in conjunction with each pay the non-deductible portion of a ticket the donors’ lives and on the world than with a few
other. Donors who prefer simple current giving and use his or her donor advised fund to pay extra dollars deducted on Schedule A.
might find themselves interested in learning the deductible part. Such a transaction would
about low-cost donor advised funds as a way of confer a “more than incidental benefit” and
1 “The U.S. Trust Study of The Philanthropic Conversation:
reducing their administrative burdens, without be subject to excise taxes on the donor and on Understanding Advisor Approaches & Client Expectations” is
intention of continuing it for generations. Those the sponsoring organization. available at https://ustrustaem.fs.ml.com/content/dam/ust/ar-
ticles/pdf/the-philanthropic-conversation.pdf.
concerned about teaching their children about • Charitable Pledges: If the donor has signed
philanthropy will favor private foundations or a charitable pledge, the Notice states it is
donor advised funds where they can give their possible to satisfy the pledge with a payment David M. Lenz is a partner at
children a seat at the charitable table. Those most from a donor advised fund. The IRS does not Schneider Smeltz Spieth Bell LLP,
concerned with impact may choose either a donor want to burden charities with determining where his practice focuses on planning
advised fund or foundation to facilitate grants to whether each donor’s communication is a for and administering wealth transfer
public operating charities, a private foundation legally binding pledge or an unenforceable for individuals and families as well
to work in community redevelopment, or even statement of intent. Therefore, if the grant as advising family foundations and other nonprofit
structures like “charitable” LLCs or crowdfunding letter from the donor advised fund does not organizations on tax and governance issues. David
mechanisms that operate entirely outside the tax- reference the pledge and the donor does not helps families develop comprehensive plans by
exempt world. By shedding the tax exemption, take a deduction for the cancellation of the incorporating complex charitable, retirement, and
structures such as LLCs and crowdfunding are pledge, the pledge may be satisfied as not tax planning strategies while paying attention to
also freed from the IRS rules concerning political more than an incidental benefit. often-overlooked items such as planning for pets or
and policy activity and can aim at systemic • Public Support Test: Contributions from a digital assets. David M. Lenz has been a member
change in society through issue advocacy. public charity — such as grants from donor of the CMBA since 2006. He can be reached at
Donor advised funds are particularly hot in advised fund — normally count as “public (216) 696-4200 or dlenz@sssb-law.com.
the philanthropic world precisely because they support” for purposes of determining if a
can easily be used to accomplish several of the nonprofit organization is a public charity or
goals listed above. A donor advised fund allows private foundation. The Notice would require
a donor to make a gift to a public charity, receive that grants from donor advised funds are
an immediate tax deduction, and recommend deemed to have been made by the original
grants from the fund to other operating donor for purposes of this computation.
charities immediately or in future years. The IRS also sought comments on how
Gifts to a donor advised fund carry the private foundations use donor-advised funds
same income tax attributes of gifts to public in conjunction with each other, underscoring
charities but allow the donor a degree of control the fact that these two different philanthropic
over grant-making similar to that of a private structures can co-exist as part of one family’s
foundation. Further, grants from a donor advised giving plan.
fund are not specifically disclosed to the public In 2018, we are in a new era of philanthropy.
on a Form 990, making their grants much more Donor advised funds have exploded in popularity.
“private” than private foundation grants, which The internet has enabled crowdfunding to become
must be listed every year on the Form 990-PF. a powerful force for donors to make a difference
The term “donor advised fund” did not on charitable, public policy, and personal levels.
appear in the Internal Revenue Code until Younger donors are volunteering more and
2006, and the IRS has never issued regulations finding new mechanisms to involve their families
concerning these funds, but because of their — even young children — in their charitable
current popularity, there are concerns about work. Highly successful tech entrepreneurs like
abuses. The IRS issued Notice 2017-73 last Mark Zuckerberg and Laurene Powell Jobs are
December describing proposed regulations re-imagining philanthropy and policy advocacy
concerning various situations in which a through the use of LLCs instead of tax-exempt
grant from a donor advised fund may be an organizations. Individual investors and charitable
appropriate transaction or may be subject entities have a wide range of options to engage
to excise taxes for providing a “more than in social impact investing. Charitable donors
incidental benefit” to the donor/adviser. have never before had so many giving options
• Event Ticket Purchases: Charitable galas with so much flexibility available to them. Will
often list ticket prices as having a smaller, non- we, as their advisors, take the time to engage and
deductible portion that represents the cost of understand their philanthropic passions and lead
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