Par. 2. Sections 53.4966-0 through 53.4966-6 are added to read as follows:
(a) Funds or accounts that make distributions only to a single identified organization —(1) In general. The term donor advised fund does not include any fund or account that is established by written agreement to make (and that actually does make) distributions only to a single identified organization as defined in paragraph (a)(2) of this section, and that meets the other requirements of this paragraph (a).
(2) Single identified organization. For purposes of this paragraph (a), the term single identified organization means an organization that is described in sections 170(c)(2) and 509(a)(1), (2), or (3) of the Internal Revenue Code (Code) (other than a disqualified supporting organization), or that is a governmental entity described in section 170(c)(1) if the distribution is exclusively for public purposes.
(3) Distributions to a single identified organization. The sponsoring organization must make distributions from the fund or account only to the single identified organization for use in the single identified organization's activities (other than the activities of administering donor advised funds or grant-making), and not to third parties on behalf of the single identified organization.
(4) Special rules —(i) In general. A fund or account will not be treated as making distributions only to a single identified organization if—
(A) A donor, donor-advisor, or related person has or reasonably expects to have the ability to advise regarding some or all of the distributions from the single identified organization to other individuals or entities; or
(B) A distribution from the fund or account provides, directly or indirectly, a more than incidental benefit (within the meaning of section 4967 of the Code), to a donor, donor-advisor, or related person with respect to the fund.
(ii) Certifications. A sponsoring organization may rely on a certification from the donor that no distribution will be described in paragraph (a)(4)(i) of this section as long as the sponsoring organization lacks knowledge to the contrary.
(5) Substitution for specified organization. A sponsoring organization may substitute another single identified organization if the substitution is conditioned upon the occurrence of a loss of exemption, substantial failure or abandonment of operations, or a dissolution or reorganization that results in the named single identified organization ceasing to exist, and the event is beyond the direct or indirect control of donor(s), donor-advisor(s), or related persons.
(6) Examples. The following examples illustrate the principles of this section:
(i) Example 1. A and B, a married couple, establish Fund V at X, a sponsoring organization. Fund V is established by written agreement to make distributions only to Y, a university recognized as exempt under section 501(c)(3) of the Code and described in section 170(b)(1)(A)(ii). In the gift instrument, A and B reserve the right to recommend which university projects should be supported by Fund V and which investments to make with fund assets. A and B certify that A, B, and persons related to A and B do not benefit from any distributions from Fund V and do not have, or reasonably expect to have, the ability to advise regarding some or all of the distributions from Y to other entities. Fund V is not a donor advised fund because all distributions are made to a single identified organization, Y.
(ii) Example 2. Assume the same facts as paragraph (a)(6)(i) of this section ( Example 1 ), except that the sponsoring organization uses funds from Fund V to purchase goods to distribute to the community on behalf of Y. Fund V does not meet the exception for a fund or account that makes distributions only to a single identified organization because not all distributions from Fund V are made to the single identified organization, Y.
(iii) Example 3. Assume the same facts as paragraph (a)(6)(i) of this section ( Example 1 ), except that A is on the Board of Y. Because A has the ability to advise some or all of the distributions from Y to other entities, Fund V does not meet the exception for a fund or account that makes distributions only to a single identified organization.
(b) Certain funds or accounts that grant scholarships —(1) In general. The term donor advised fund does not include any fund or account with respect to which a donor or donor-advisor advises as to which individuals receive grants for travel, study, or other similar purposes, if—
(i) The exclusive purpose of the fund or account is to make grants to individuals for travel, study, or other similar purposes;
(ii) The donor or donor-advisor provides advice exclusively in the person's capacity as a member of the selection committee selecting the individuals who receive grants;
(iii) All the members of the selection committee are appointed by the sponsoring organization;
(iv) No combination of donor(s), donor-advisor(s), or related persons controls, directly or indirectly, the selection committee;
(v) All grants from the fund or account are awarded on an objective and nondiscriminatory basis pursuant to a written procedure approved in advance by the board of directors of the sponsoring organization, and the procedure is designed to ensure that all the grants adhere to the principles set forth by section 4945(g)(1), (2) or (3) of the Code and the regulations under section 4945 (other than the requirement to get advance approval by the IRS); and
(vi) The fund or account maintains adequate records as described in § 53.4945-4(c)(6) that demonstrate the recipients were selected on an objective and nondiscriminatory basis.
(2) Control of committee —(i) In general. For purposes of paragraph (b)(1)(iv) of this section, whether control of the committee exists is determined by looking to the substance, rather than the form, of any arrangement.
(ii) Direct control. A committee will be considered controlled if donor(s), donor-advisor(s), or related persons, either alone or together—
(A) Can require the committee to take or refrain from taking any action;
(B) Control 50 percent or more of the total voting power of the committee; or
(C) Have the right to exercise veto power over the committee's decisions.
(iii) Indirect control. Whether a committee is indirectly controlled by a combination of donor(s), donor-advisor(s), or related persons is determined by the facts and circumstances, including the nature of any relationships among the members of the selection committee and with any donor, donor-advisor, or related person. For example, a committee is indirectly controlled by a combination of donor(s), donor-advisor(s), or related persons if a majority of the selection committee is currently engaged by the donor, donor-advisor, or any related person in any employment or fiduciary capacity, whether as an employee or independent contractor, or recommended by a donor or donor-advisor and appointed to the selection committee based on other than objective criteria regarding the person's expertise, or a combination thereof.
(3) Appointing members of the selection committee. In appointing the members of the selection committee, a sponsoring organization may act through its board of directors, trustees, or other governing body; a committee appointed by the governing body; or an appropriate officer of the sponsoring organization.
(4) Examples. The following examples illustrate the principles of this section:
(i) Example 1. Fund O was established at sponsoring organization Y to grant scholarships. Fund O receives contributions from many unrelated donors, including D, E, and F. Y appointed D, E, and F to serve on Fund O's 5-person selection committee by reason of their status as donors. Because donors control its selection committee, Fund O does not meet the exception for certain funds or accounts that grant scholarships under paragraph (b) of this section.
(ii) Example 2. Assume the same facts as in paragraph (b)(4)(i) of this section ( Example 1 ), except that Y appoints G, a donor; H, G's donor-advisor; and I, an attorney currently employed by G to serve on Fund O's 5-person selection committee. Y appoints G, H, and I by reason of G's status as a donor. The committee is indirectly controlled by G, and thus the fund does not meet the exception for certain funds or accounts that grant scholarships under paragraph (b) of this section.
(iii) Example 3. Assume the same facts as in paragraph (b)(4)(i) of this section ( Example 1 ), except that Y appoints D and four officers of Y who have not contributed to Fund O to serve on the 5-person selection committee. Assuming that the other requirements of paragraph (b)(1) of this section are met and that the facts do not indicate that D indirectly controls the committee, Fund O meets the exception for certain funds or accounts that grant scholarships under paragraph (b) of this section.
(c) Certain scholarship funds established by certain section 501(c)(4) organizations. The term donor advised fund does not include a fund or account established by a broad-based membership organization described in section 501(c)(4) that establishes a committee to advise as to which individuals receive grants, if—
(1) The fund or account's single identified charitable purpose is to make grants to individuals for scholarships described in section 4945(g)(1);
(2) The selection of recipients of scholarships from the fund or account is made using a selection committee the members of which are nominated by the section 501(c)(4) organization and approved in writing by the sponsoring organization;
(3) The fund or account serves a charitable class;
(4) Recipients of grants from the fund or account are selected on an objective and nondiscriminatory basis pursuant to a procedure, approved in advance by the sponsoring organization's board of directors, that is designed to ensure that all the grants meet the requirements of section 4945(g)(1) and the regulations under section 4945 (other than the requirement to get advance approval by the IRS);
(5) No distribution is made from the fund or account to, or for the benefit of:
(i) Any director, officer, or trustee of the sponsoring organization of the fund or account;
(ii) Any member of the fund or account's selection committee;
(iii) Any member, honorary member, or employee of the section 501(c)(4) organization; or
(iv) Any related person with respect to anyone described in paragraph (c)(5)(i), (ii), or (iii) of this section; and
(6) The fund or account maintains adequate records as described in § 53.4945-4(c)(6) that demonstrate the recipients were selected on an objective and nondiscriminatory basis.
(d) Certain disaster relief funds. The term donor advised fund does not include a fund or account if—
(1) The fund or account's single identified charitable purpose is to provide relief from one or more qualified disasters within the meaning of section 139(c)(1), (2), or (3) of the Code;
(2) The fund or account serves a charitable class;
(3) The selection of recipients of grants from the fund or account is made using a selection committee—
(i) That is not directly or indirectly controlled (as defined in paragraph (b)(2) of this section) by donor(s), donor-advisor(s), or related persons and to which all the members are appointed by the sponsoring organization; or
(ii) The majority of which, if the fund or account gives preference or priority to employees (or their family members) of an employer to receive grants, consists of persons who are not in a position to exercise substantial influence over the affairs of the employer (or adequate substitute procedures exist to ensure that any benefit to the employer is incidental and tenuous);
(4) The selection committee selects recipients of grants from the fund or account (and determines the amounts of such grants) based on objective and nondiscriminatory determinations of need pursuant to a procedure approved in advance by the board of directors of the sponsoring organization;
(5) No distribution is made from the fund or account that would result in more than incidental benefit (within the meaning of section 4967 of the Code) to—
(i) Any director, officer, or trustee of the sponsoring organization of the fund or account;
(ii) Any member of the fund's selection committee; or
(iii) Any related person with respect to a director, officer, or trustee of the sponsoring organization or to a member of the selection committee; and
(6) Records are maintained that demonstrate the need of the recipients for the disaster relief assistance provided and that satisfy section 6033(b)(14) of the Code.