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Paying a personal pledge from a Family Foundation

  • 1.  Paying a personal pledge from a Family Foundation

    Posted 11-12-2019 09:21 AM

    Is this no longer an issue with the IRS?

    We have a donor who made a 7 figure pledge personally and 3 months later we received a payment from the family foundation of the donor.

    The process that I thought we should follow was:

    1) Reverse the Donor pledge 

    2) Re-enter the pledge as being from the Family Foundation

    3) Enter the payment.

    I discovered this transaction and mentioned to my VP that we needed to do a bit of gift entry training on flagging this kind of transaction and to follow the steps above and my VP thought that the IRS had changed it's perspective on this being an act of self-dealing (provided there were no tangible benefits associated with the original pledge).

    Has the IRS changed this perspective?  I cannot find anything online that indicates that this is no longer the case.

    Thanks!

    Mark



    ------------------------------
    Mark Sanders
    Director of Development Information Systems
    Georgia Tech
    mark.sanders@gatech.edu
    ------------------------------


  • 2.  RE: Paying a personal pledge from a Family Foundation

    Posted 11-12-2019 09:31 AM

    Hi Mark,

     

    So many Georgia folks on here. It's nice to see.

     

    We had this discussion a little while back. The guidance from the IRS seems to be that Donor Advised Funds can pay pledges. Family Foundations weren't given the same treatment, though. I think what you're proposing is probably what a bunch of people are doing. A conservative approach is to do what you're doing for all third-party payments until the IRS really figures out what it wants to do.

     

    ––––––––––––––

    Bill Wong
    Manager of Giving Operations
    Savannah College of Art and Design ®


    office: 404.253.6081
    wswong@scad.edu / www.scad.edu

    SCAD40: Forty Creative Years


    SCAD: The University for Creative Careers ®
    NOTICE: This e-mail message and all attachments transmitted with it may contain legally privileged and confidential information intended solely for the use of the addressee. If the reader of this message is not the intended recipient, you are hereby notified that any reading, dissemination, distribution, copying, or other use of this message or its attachments is strictly prohibited. If you have received this message in error, please notify the sender immediately by telephone or by electronic mail and then delete this message and all copies and backups thereof. Thank you.

     

     






  • 3.  RE: Paying a personal pledge from a Family Foundation

    Posted 11-12-2019 09:49 AM
    DAFs CANNOT pay pledges by default.  There are a whole set of criteria that must be met first.  But even if the IRS criteria are met you still cannot use a DAF gift to satisfy a personal pledge if the DAF rules set by the DAF state that their gifts cannot be used in that manner.

    For DAFs unless all these factors are considered, paying a pledge is called an impermissible benefit and results in fines and penalties to the donor and the DAF.  When it comes to private foundations it is called self-dealing and is also not allowed.

    John

    John H. Taylor
    Principal
    John H. Taylor Consulting, LLC
    2604 Sevier St.
    Durham, NC   27705
    919.816.5903 (cell/text)

    Serving the Advancement Community Since 1987






  • 4.  RE: Paying a personal pledge from a Family Foundation

    Posted 11-12-2019 10:17 AM

    Hi again, Mark.

     

    You can read IRS Notice 2017-73 for yourself regarding DAFs, which weren't the point of you question. The "whole set of criteria" John refers to is just three pretty basic things.

     

    ·                     (1) the sponsoring organization makes no reference to the existence of a charitable pledge when making the DAF distribution; (Pretty self-explanatory)

    ·                     (2) no Donor/Advisor receives, directly or indirectly, any other benefit that is more than incidental (as discussed in this notice and as further defined in future proposed regulations) on account of the DAF distribution; and (The donor receives no benefit; the normal stuff we would claim has some value, and there are examples in the notice)

    ·                     (3) a Donor/Advisor does not attempt to claim a charitable contribution deduction under @ 170(a) with respect to the DAF distribution, even if the distributee charity erroneously sends the Donor/Advisor a written acknowledgment in accordance with @ 170(f)(8) with respect to the DAF distribution. (The donor doesn't try to take an improper tax deduction, even if we screw up and send them a letter saying their gift may be deductible)

     

    DAFs will eventually catch up to this and change their boilerplate "can't be used to satisfy pledges" language. Probably not until the IRS codifies this guidance, though. Again, read the notice and come to your own conclusion.

     

     

    ––––––––––––––

    Bill Wong
    Manager of Giving Operations
    Savannah College of Art and Design ®


    office: 404.253.6081
    wswong@scad.edu / www.scad.edu

    SCAD40: Forty Creative Years


    SCAD: The University for Creative Careers ®
    NOTICE: This e-mail message and all attachments transmitted with it may contain legally privileged and confidential information intended solely for the use of the addressee. If the reader of this message is not the intended recipient, you are hereby notified that any reading, dissemination, distribution, copying, or other use of this message or its attachments is strictly prohibited. If you have received this message in error, please notify the sender immediately by telephone or by electronic mail and then delete this message and all copies and backups thereof. Thank you.

     

     






  • 5.  RE: Paying a personal pledge from a Family Foundation

    Posted 11-12-2019 10:20 AM
    And I say, regardless of what conclusion you come to after reading this notice, you still cannot violate the rules set by the DAFs themselves.  Yes, some will take the stance the IRS has suggested, but until that becomes the status quo I think the protocol we have followed for years makes the most sense.

    John

    John H. Taylor
    Principal
    John H. Taylor Consulting, LLC
    2604 Sevier St.
    Durham, NC   27705
    919.816.5903 (cell/text)

    Serving the Advancement Community Since 1987






  • 6.  RE: Paying a personal pledge from a Family Foundation

    Posted 11-12-2019 10:42 AM
    I'm apt to take the conservative approach here as well, especially after reading Fidelity's own letter in response to the IRS call for comments. You can read it here (pdf)  https://www.fidelitycharitable.org/content/dam/fc-public/docs/fc/fidelity-charitable-comments-notice-2017-73-2018-03-02.pdf 

    Fidelity generally agrees with the IRS changing its approach to DAFs, which would lead to better alignment between donor intent, gift entry processes, and pledge fulfillment. However, Fidelity takes pretty broad exception to the IRS's reasoning on the issues. In one particular, Fidelity objects to the notion that the sponsoring org can make no reference to the existence of the pledge. From their perspective, and mine, this requirement only perpetuates the wink-and-a-nod loophole-like statues that DAFs occupy. The donor's intent is to fulfill the pledge. The charity's intent is to credit the donor for their philanthropy. The DAF vehicle is simply a mechanical tool, over which the sponsor exercises only compliance-level authority. It's absurd to insist that Fidelity not state that they're making a pledge-fulfilling payment in order for the pledge to qualify as pledge-fulfilling, when the only reason Fidelity would make the payment is because the donor want to fulfill a pledge.

    Because of these substantial disagreements over the IRS's reasoning, and to some extent, over the details of the regulation, I don't feel comfortable advising clients to rely on the Notice. They may be allowed to, but I suspect that the ground may shift beneath our feet again.


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