Donor Advised Fund Gift to a 501(c)(3) Donor

Can a 501(c)(3) organization with a donor advised fund at a community foundation make a distribution to itself?

Unfortunately, when the law changed under the Pension Protection Act of 2006, this was left unclear. Intermediate sanctions rules prohibit grants and similar payments to donors from a donor advised fund, and charitable organizations are not excluded from the definition of donor. We do not believe that this rule was intended to apply when the donor is a 501(c)(3) public charity or a government agency, but the law does not currently make them exempt. 

Depending on the circumstances, there may be a couple of options. One option is to have the fund make distributions only to the public charity. A fund that distributes to a single organization is excluded from the definition of a donor advised fund. However, this means that the charity will have to do its own grantmaking. Conversely, the fund could be one that only makes grants to organizations other than the charity donor. Finally, the donor charity could create two funds – one that would make distributions only to it, while the second would be used for grants to others.

Generally, if the charity is not the only donor, and the fund has multiple donors, the fund may not meet the legal definition of a donor advised fund at all. In that case, the fund could make grants to the charity donor as well as to other organizations.

Last revised May 2017.