# Prop. Treas. Reg. § 53.4966-3: Definition of donor advised fund. Proposed regulation, not in force. REG-142338-07, 88 FR 77922, published 2023-11-14 . Interprets 26 U.S.C. § 4966. Par. 2. Sections 53.4966-0 through 53.4966-6 are added to read as follows: (a) In general. Except as provided in § 53.4966-4, the term donor advised fund means a fund or account— (1) That is separately identified by reference to contributions of a donor or donors in accordance with paragraph (b) of this section; (2) That is owned and controlled by a sponsoring organization; and (3) With respect to which at least one donor or donor-advisor has, or reasonably expects to have, advisory privileges with respect to the distribution or investment of amounts held in the fund or account by reason of the donor's status as a donor in accordance with paragraph (c) of this section. (b) Separate identification by reference to contributions of a donor or donors —(1) In general. A fund or account is separately identified by reference to contributions of a donor or donors if the sponsoring organization maintains a formal record of contributions to the fund or account relating to a donor or donors. If there is no formal record, whether a fund or account is separately identified by reference to contributions of a donor or donors is based on all the facts and circumstances. (2) Facts and circumstances tending to show that a fund or account is separately identified. Facts and circumstances that are relevant in determining that a fund or account is separately identified by reference to contributions of a donor or donors include— (i) The fund or account balance reflects items such as contributions, dividends, interest, distributions, administrative expenses, and gains and losses (realized or unrealized); (ii) The fund or account is named after one or more donors, donor-advisors, or related persons; (iii) The sponsoring organization refers to the fund or account as a donor advised fund; (iv) The sponsoring organization has an agreement or understanding with one or more donors or donor-advisors that the fund or account is a donor advised fund; (v) One or more donors or donor-advisors regularly receive a fund or account statement from the sponsoring organization; and (vi) The sponsoring organization generally solicits advice from the donor(s) or donor-advisor(s) before it makes distributions from the fund or account. (3) Commingling. A fund or account does not fail to be a donor advised fund merely because the sponsoring organization commingles the assets attributed to the fund or account with other assets of the sponsoring organization, as long as the sponsoring organization treats the fund or account as attributable to contributions of a donor or donors. (c) Advisory privileges —(1) In general —(i) Facts and circumstances. Under section 4966(d)(2)(A)(iii) of the Internal Revenue Code (Code), at least one donor or donor-advisor must have, or reasonably expect to have, advisory privileges by reason of the donor's status as a donor. A donor or donor-advisor may have, or reasonably expect to have, advisory privileges even in the absence of actual provision of advice. The existence of advisory privileges, or the reasonable expectation thereof, is based on all the facts and circumstances, which in turn depend on the conduct (and any agreement or understanding) of both the donor(s) or donor-advisor(s) and the sponsoring organization. Advisory privileges include those arising from service on an advisory committee. If a donor or donor-advisor has, or reasonably expects to have, advisory privileges as defined in this paragraph (c), then the advisory privileges are deemed to be by reason of the donor's status as a donor except as otherwise provided in this paragraph (c). (ii) Application to entire fund or account. If at least one donor or donor-advisor has, or reasonably expects to have, advisory privileges with respect to a fund or account or any portion of a fund or account, advisory privileges by reason of the donor's status as a donor exist with respect to that fund or account even if there are multiple donors to the fund or account. (iii) Donor, donor-advisor, or related person appointed to an advisory committee —(A) In general. A sponsoring organization's appointment of a donor, donor-advisor, or related person to be on a committee of persons that advises as to distributions or investments of amounts in the fund or account will be deemed to result in advisory privileges by reason of the donor's status as a donor unless- ( 1 ) The appointment is based on objective criteria related to the expertise of the appointee in the particular field of interest or purpose of the fund or account; ( 2 ) The committee consists of three or more individuals, not more than one-third of whom are related persons with respect to any member of the committee; and ( 3 ) The appointee is not a significant contributor to the fund or account, taking into account contributions by related persons with respect to the appointee, at the time of appointment. (B) Exception. An appointee may be deemed to have advisory privileges by reason of a donor's status as a donor based on the facts and circumstances, such as if the appointee was not a significant contributor to a fund or account at the time of appointment but became a significant contributor shortly thereafter. (iv) Officers, etc. of sponsoring organization. Advice provided solely in a person's capacity as an officer, director, employee (or in a similar capacity) of a sponsoring organization does not by itself give rise to advisory privileges by reason of a donor's status as a donor. However, if an officer, director, or employee of the sponsoring organization is allowed to advise how to distribute or invest amounts in a fund or account because of such person's contributions to the fund or account, such person will be considered to have advisory privileges by reason of the person's status as a donor with respect to that fund or account. (v) Deemed advisory privileges. Except as provided in paragraph (c)(1)(iv) of this section, if a donor is the sole person with advisory privileges with respect to a fund or account, the advisory privileges will be deemed to be by reason of the donor's status as a donor. (2) Facts sufficient to find advisory privileges. A donor or donor-advisor has advisory privileges by reason of the donor's status as a donor, regardless of whether they are exercised, if— (i) The sponsoring organization allows a donor or donor-advisor to provide nonbinding recommendations regarding distributions from, or regarding the investment of assets held in, a fund or account; (ii) A written agreement between the sponsoring organization and a donor or a donor-advisor states that a donor or donor-advisor has advisory privileges; (iii) A written document or any marketing material made available to a donor or donor-advisor indicates that a donor or donor-advisor may provide advice to the sponsoring organization regarding the distribution or investment of amounts held by a sponsoring organization (for example, a pre-approved list of investment options or distributees that the sponsoring organization provides to a donor or donor-advisor); or (iv) The sponsoring organization generally solicits advice from a donor or donor-advisor regarding the distribution or investment of amounts held in a fund or account. (d) Substance over form. The Commissioner may look to the substance of an arrangement, not merely its form, in determining whether the arrangement is a donor advised fund. (e) Examples. The following examples illustrate the principles of this section (in each example, assume that the funds or accounts at issue are owned and controlled by the sponsoring organization): (1) Example 1. A, B, and C are unrelated donors who jointly establish Fund X at sponsoring organization Y. A, B, and C each make equal contributions to Fund X and each have advisory privileges with respect to all of the assets in Fund X. Y sends A monthly account statements showing Fund X's account balance and any transactions in the account. A shares information about Fund X with B and C when asked or as needed. Fund X is separately identified by reference to contributions of donors and is a donor advised fund. (2) Example 2. Assume the same facts as paragraph (e)(1) of this section ( Example 1 ), except that A makes 70 percent of the contributions, B 20 percent, and C 10 percent, with each having advisory privileges with respect to all of the assets in Fund X. Fund X is separately identified by reference to contributions of donors and is a donor advised fund. (3) Example 3. In Year 1, X, a governmental entity described in section 170(c)(1), and Y, a public charity described in section 509(a)(1) of the Code, establish and fully fund Fund M at sponsoring organization A. Fund M is separately identified with respect to X and Y. However, because neither X nor Y is a donor, Fund M is not separately identified by reference to contributions of a donor or donors and is not a donor advised fund. (4) Example 4. Assume the same facts as paragraph (e)(3) of this section ( Example 3 ), except that in Year 2 individual donors contribute to Fund M. Only X and Y have advisory privileges with respect to the distribution or investment of amounts held in Fund M. Because no donor or donor-advisor has advisory privileges with respect to Fund M, Fund M is not a donor advised fund. (5) Example 5. F, an individual, is a donor to Fund T, a multiple-donor fund at sponsoring organization X. F is also a director of X who provides investment advice that affects all funds at X in his capacity as a director. F will not be considered to have advisory privileges with respect to Fund T solely because of F's duties as director of X. (6) Example 6. Assume the same facts as paragraph (e)(5) of this section ( Example 5 ), except that by reason of F's contribution to Fund T, F is appointed to a committee that advises how to distribute or invest amounts in Fund T. F has advisory privileges with respect to Fund T by reason of F's status as a donor. (7) Example 7. Sponsoring organization Y has established Fund P, which is dedicated to the relief of poverty in City Z. Fund P is advised by a 5-member committee selected by Y from residents of City Z, potentially including donors to Fund P. The committee is comprised of community leaders and other persons with special knowledge or experience in the relief of poverty. Each committee member serves for a term of three years and cannot serve more than two terms. No committee member is related to another committee member and no committee member is (together with related persons with respect to any committee member) a significant contributor to Fund P. Over 100 citizens of City Z have contributed to Fund P. Y maintains a formal record of donors to Fund P and amounts contributed, and thus Fund P is separately identified by reference to contributions of donors. However, under the circumstances, no person who serves on the advisory committee of Fund P is deemed to have advisory privileges by reason of a donor's status as a donor. Fund P is not a donor advised fund. (8) Example 8. Fifteen unrelated individuals establish Fund Q at sponsoring organization T. Each individual contributes to Fund Q, and these individuals constitute a committee appointed by T to advise on investments and distributions from Fund Q. T regularly issues a statement to one of the committee members (who shares the information with the others) showing the account balance and any transactions with Fund Q. Fund Q is a donor advised fund. (9) Example 9. Assume the same facts as in paragraph (e)(8) of this section ( Example 8 ), except that the advisory committee consists of three of the donors, rotated annually. Fund Q is a donor advised fund. (10) Example 10. N, an individual, establishes Fund O at W, a sponsoring organization. Fund O serves as a memorial to N's daughter, and receives many contributions from unrelated individuals. N is the only person with advisory privileges and thus is a donor advisor. Fund O is a donor advised fund. (11) Example 11. F, an individual, establishes Fund R at T, a sponsoring organization, to provide scholarship grants for the advancement of science at local secondary schools. F is the sole donor to Fund R. Pursuant to F's recommendation, an advisory committee consisting of five persons is solely responsible for advising T with respect to the distribution and investment of amounts held in Fund R. F recommends (and T appoints) two individuals who are the heads of the science departments of those schools, neither of whom is related to F. T independently appoints the other three committee members, none of whom are recommended by donors or related to donors. The persons recommended by F for committee membership are not donor-advisors because F's recommendations are for individuals who are not related persons with respect to F, who, based on objective criteria, have expertise in the field of interest of Fund R, the committee consists of more than two individuals, and a majority of the committee is not recommended by F. Because no donor or donor-advisor has, or reasonably expects to have, advisory privileges with respect to the distribution or investment of amounts held in the fund or account by reason of the donor's status as a donor, Fund R is not a donor advised fund.