DS9 Document EFTA00598164

,7 COUNCIL on FOUNDATIONS Is the Fund a Donor-Advised Fund? The flowchart on the following pages is designed to help community foundations determine which funds should be classified as donor-advised under the Pension Protection Act of 2006. For more information about the definition of a donor-advised fund, see the document entitled "Definition of a Donor-Advised Fund." Summary A fund is only a donor-advised fund if: • A donor or person appointed or designated by the donor has, or reasonably expects to have, advisory privileges with respect to distributions or investments (Step 1); • The fund is separately identified by reference to contributions of donor(s) (Step 2); and • The fund does not fall within an exception established by the Act (Step 3). The information provided here is based on our continuing analysis of the bill. Every efTort has been made to ensure accuracy of these documents. However, due to the complexity of the hill and the fact that many of these provisions introduce issues that are new to the Internal Revenue Code, please understand that this information is subject to change. The information is not a substitute for expert legal, tax or other professional advice and we strongly encourage grantmakers and donors to work with their counsel to determine the impact of this legislation on their particular situations. This information may not be relied upon for the purposes of avoiding any penalties that may be imposed under the Internal Revenue Code. EFTA00598164 Step 1: Does a donor or person appointed or designated by the donor have, or reasonably expect to have, advisory privileges with respect to distributions or investments? Is the donor's role limited solely to designating the fund's purpose in the fund agreement? No Is the dono 's role limited to recommending individuals with expertise to advise the community foundation with respect to investments or distributions of the fund? No Does the fund agreement indicate that the donor (or a person appointed or designated by the donor) can provide advice regarding investments or distribution ? No Does the conduct of the community foundation and the donor either at the time of the gift or subsequent to the gift indicate that the donor may provide advice regarding investments or distributions. No The fund is not a donor-advised fund. Yes Yes Yes Yes The fund is not a donor-advised fund. The fund is not a donor-advised fund so long as the recommendation is based upon objective criteria. The fund may be a donor-advised fund. Proceed to Step 2. The fund may be a donor-advised fund. Proceed to Step 2. Frequently Asked Question: Are these donor-advised funds? A company established a fund but does not contribute to the fund. The fund is named for the company and advised by a top company official. A family established a frind to honor a deceased child but the family is not a donor to the frind. All contributions are raised through fundraising activities but the family makes grant recommendations. Neither the Act nor the legislative history provides a clear answer to the question of whether these are examples of donor- advised funds. Without clear guidance, the conservative approach is to treat these funds as donor-advised until additional guidance is provided. Community foundations should work with their professional advisors to determine the best approach for handling the classification of these funds. EFTA00598165 Step 2: Is the fund separately identified by reference to contributions of donor(s)? Is the fund named after a donor to the fund? I No Is the fund named after an individual or entity related to a donor to the fund? I No Is the fund treated on the books of the community foundation as attributable to funds contributed by specific donor(s)? No Is there other evidence that the fund operates as if contributions are separately identified? No The fund is not a donor-advised fund. The fund may be a donor-advised fund. Yes Proceed to Step 3. -O. The fund may be a donor-advised Yes fund. Proceed to Step 3. -O. The fund may be a donor-advised fund. Yes Proceed to Step 3. -O. The fund may be a donor-advised fund. Yes Proceed to Step 3. Frequently Asked Question: Who are "related parties"? While the Act and its legislative history provide no definition, immediate family members (i.e. spouse, children) would likely be considered related parties. Businesses controlled by donors also are likely to be considered related. EFTA00598166 Step 3: Does the fund fall o ithin an exception established by the Act? Does the fund only make distributions to a single identified organization or government entity? I No Is the fund advised by a committee? I Yes Does the donor, donor's designees or persons related to the donor serve on the committee or have any other advisory privileges with respect to the fund? I Yes Does the donor or persons related to a donor control the committee directly or indirectly? No Is the fund established to provide assistance to individuals for travel, study or other similar purposes? I Yes Is the donor's advice given solely as a member of the committee? Yes Does the community foundation appoint all of the members of the selection committee? Yes Has the community foundation's board approved a procedure for awarding grants on an objective and nondiscriminatory basis? I Yes Yes This is not a donor-advised fund even if the donor has advisory privileges with respect to investments or distributions within the identified organization. The fund is a donor-advised fund. No -► No The fund is not a donor-advised fund. -► The fund is a donor-advised fund. Yes -► No The Treasury Secretary has the authority to exempt other committee-advised funds from the treatment as a donor-advised fund. Unless so exempted, the fund is a donor-advised fund. The fund is a donor-advised fund. No The fund is a donor-advised fund. No The fund is a donor-advised fund. No The fund is not a donor-advised fund. EFTA00598167