President Bush’s tax reduction plan is not final yet and might take months to get approved. Whatever plan is adopted is likely to be controversial, but it will also contain provisions to protect the public. One of the agreed upon policies is that money meant for public good cannot be used for private benefit. Donor advised funds are not clearly regulated as public charities or private foundations, and there is a proposal to clarify their status and impose rules to protect the public’s interest in them. It is expected that the Bush administration will revisit this proposal. This article discusses a proposal to regulate donor advised funds and their donors. There are two options being considered: treating the funds as public charities while regulating donors like private foundations, or regulating both the funds and donors as public charities. The article focuses on the control donors have over these funds, the definition of donor abuse, and the motivations behind the proposed regulations. This is important for people who advise clients on charitable giving. Donor advised funds are a way for people to give money to charities. The people who donate to the fund get to decide which charities get the money and when. They also get a tax break right away. The people who manage the fund don’t have to follow the donor’s advice, but they usually do. Sometimes, the charity that gets the money is told that it was because of the donor’s suggestion. Donor advised funds are similar to private foundations, but on a smaller scale. They don’t do charity work themselves, but instead fund other charities. They give the donor some control, like a private foundation. The IRS decides whether a donor advised fund should be regulated like a private foundation based on certain factors. However, the lack of clear rules means that donor advised funds may not be regulated properly. It’s likely that donor advised funds still give donors a lot of control, even though they’re not supposed to. The current rules might be too strict or not strict enough to prevent abuse of donor advised funds. The Clinton Treasury Proposal would have changed the rules for donor advised funds, making it easier for them to be classified as public charities. This would encourage more people to donate to charity and increase the amount of money going to good causes. However, there are still concerns about whether donor advised funds are truly benefiting the public. Instead of changing the rules, it might be better to focus on ensuring that the public actually benefits from these funds. In any laws about donor advised funds, it should be clear that the rules for private foundations don’t apply because donors don’t have total control over the money. As long as an independent group checks the donor’s suggestions and there’s no personal benefit, donor advised funds should be considered public charities. Donors should still be careful about how they interact with the fund, even though it’s a public charity. Public charity status doesn’t mean donors can do whatever they want with the money. The charitable community wants to regulate donors who give money to charity in a way that is stricter than what the Treasury Department is proposing. They want to make sure that donors don’t use the money for their own benefit. But this could end up costing more money and taking away from the actual causes the charities support. It’s better to stick with the Treasury’s proposal and only impose strict rules if there is evidence of donors using the money for themselves. Some people in the charity world are trying to make it harder for commercial organizations to offer donor advised funds. They think only charities should have an easier time with regulations. But this could make it too expensive for commercial organizations to offer these funds. There’s no evidence that commercial funds are being misused, so it seems like the charity world just wants to protect its own interests. More people are using donor advised funds to donate to charity instead of using their wealth for personal gain. Some people want to regulate these funds, but there hasn’t been much abuse. The regulations may make it harder for people to give to charity. Donor advised funds should be regulated like public charities, and profit-seeking entities should still be able to give to charity.
Source: https://www.floridabar.org/the-florida-bar-journal/regulating-donor-advised-funds/
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