Treasury Dept. Issues Proposals on Donor-Advised Funds and Travel Tours

The Treasury Department has issued two proposals that would affect many non-profit organizations:

• The department asked Congress to tighten the rules that govern so-called donor-advised funds. Such funds enable donors to turn over cash and appreciated assets to a charity, claim a charitable deduction, and then recommend how, when, and to which organizations to distribute the money.
• The department released rules designed to explain what charities that run travel tours must do to avoid paying taxes on revenue they earn.

In its proposal to Congress, the Treasury Department noted that the number of donor-advised funds offered by charitable organizations has “grown dramatically” in recent years. The funds are especially popular at community foundations.

“There is concern that amounts maintained in donor-advised funds are not being distributed currently for charitable purposes,” the Treasury Department said. “The lack of uniform guidelines governing the operation of donor-advised funds also raises concerns that such funds may be used to provide donors with the benefits normally associated with private foundations (such as control over grant making), without the regulatory safeguards that apply to private foundations.”

To read the proposal, which was released as part of the Clinton administration’s fiscal 2001 budget, go to the Treasury Department’s Web site. (Note: document is in portable document format, which requires Adobe Acrobat Reader, which is available free from the Adobe Web site.)

Meanwhile, the Treasury Department and the Internal Revenue Service have issued the final version of rules that explain when universities, museums, and other tax-exempt organizations can sponsor travel tours without paying income tax on revenue from the trips. Organizations must pay unrelated-business income tax, known as UBIT, on earnings from activities not related to their tax-exempt purposes.

The final rules on tours were published in the February 7 issue of the Federal Register, Pages 5,771-5,775. The rules can also be found online.

More details about both actions will be available in the February 24 issue of The Chronicle, which will be available online February 21.