IRS Provides Criteria on Donor-Advised Funds

Washington, D.C. — A new IRS revenue procedure offers reliance criteria for private foundations and sponsoring organizations that maintain donor-advised funds to use in determining whether a potential grantee qualifies as a public charity.

Rev. Proc. 2009-32 supersedes the portions of Section 3.01 of Notice 2006-109 that relate to reliance for purposes of determining whether a grantee is a public charity under Section 509(a)(1), (2) or (3) of the Tax Code. All other parts of Notice 2006-109 remain unchanged and in effect, including the separate requirements for grantors to determine whether a grantee is a Type I, Type II, or functionally integrated Type III supporting organization.

In determining whether a public charity is classified under 509(a)(1), (2), or (3) of the Tax Code, a private foundation or a sponsoring organization that maintains a donor-advised fund, acting in good faith, may rely on either:

(1) The grantee’s current IRS letter recognizing the grantee as exempt from federal income tax and indicating the grantee’s public charity classification under Section 509(a)(1), (2), or (3); or

(2) Information from the IRS Business Master File. A grantor may download the BMF directly from the IRS Web site and store the relevant information in hard copy or electronically. A grantor may also obtain the BMF information from a third party, so long as the following requirements are met:

(i)    The third party provides a report to the grantor that includes: (A) the grantee’s name, Employer Identification Number, and public charity classification under Section 509(a)(1), (2), or (3); (B) a statement that the information is from the most current update of the BMF and the BMF revision date; and (C) the date and time the information was provided to the grantor; and,

(ii)    The report is in a form that the grantor can store in hard copy or electronically.