Par. 2. Sections 53.4966-0 through 53.4966-6 are added to read as follows:
(a) Taxable distributions —(1) In general. Except as provided in paragraphs (a)(2) and (3) of this section, the term taxable distribution means any distribution from a donor advised fund—
(i) To any natural person; or
(ii) To any other person if—
(A) The distribution is for any purpose other than one specified in section 170(c)(2)(B) of the Internal Revenue Code (Code), as defined in paragraph (b) of this section; or
(B) The sponsoring organization does not exercise expenditure responsibility with respect to the distribution in accordance with paragraph (d) of this section.
(2) Non-taxable distributions. The term taxable distribution does not include any distribution from a donor advised fund to—
(i) Any organization described in section 170(b)(1)(A) (other than a disqualified supporting organization), as defined in paragraph (c) of this section;
(ii) The sponsoring organization of the donor advised fund; or
(iii) Any other donor advised fund.
(3) Special rule. If a series of distributions is undertaken pursuant to a plan that achieves a result inconsistent with the purposes of section 4966 of the Code, the distributions are treated as a single distribution for purposes of section 4966. For example, if a donor advises a distribution, that the sponsoring organization subsequently makes, from a donor advised fund to Charity X and the donor or the sponsoring organization arranges for Charity X to use the funds to make distributions to individuals recommended by the donor, the distribution will be a taxable distribution from the sponsoring organization to individuals.
(b) Distribution for purpose not specified in section 170(c)(2)(B) —(1) In general. For purposes of paragraph (a)(1)(ii)(A) of this section, a distribution to be used for an activity that is prohibited under section 501(c)(3) of the Code or for an activity that, if it were a substantial part of a section 501(c)(3) organization's total activities, would cause loss of tax exemption, is not for a purpose specified in section 170(c)(2)(B). For example, a distribution used for political campaign intervention activity or for attempting to influence legislation is considered to be for a purpose not specified in section 170(c)(2)(B). Purposes described in section 170(c)(2)(B) are treated as such whether or not carried out by an organization described in section 170(c).
(2) Grants to noncharitable organizations. If the distribution is a grant (as defined in § 53.4945-4(a)(2)) to any organization (other than an organization described in section 501(c)(3) and not in section 509(a)(4) of the Code), it will not be considered for a purpose specified in section 170(c)(2)(B) unless the grantee agrees either to separately account for the grant funds on its books or to segregate the grant funds.
(c) Organizations described in section 170(b)(1)(A) —(1) In general. For purposes of paragraph (a)(2)(i) of this section, an organization will be treated as described in section 170(b)(1)(A) if—
(i) It is described in both sections 170(b)(1)(A) and 170(c)(2), other than a disqualified supporting organization, and without regard to section 170(c)(2)(A);
(ii) It is a governmental unit described in section 170(b)(1)(A)(v) and 170(c)(1) (or an agency or instrumentality thereof, including an organization described in section 511(a)(2)(B) of the Code), as long as the distribution to it is made for exclusively public purposes; or
(iii) It is a foreign government (or an agency or instrumentality thereof), or an international organization designated as such by Executive Order under 22 U.S.C. 288, as long as the distribution to it is made exclusively for charitable purposes as described in section 170(c)(2)(B).
(2) Certain foreign organizations. For purposes of this section, a foreign organization distributee that does not have a ruling or determination letter that it is an organization described in sections 501(c)(3) and 170(b)(1)(A) (other than a disqualified supporting organization) will be treated as described in sections 501(c)(3) and 170(b)(1)(A) (other than a disqualified supporting organization) if, prior to the distribution, the sponsoring organization makes a good faith determination, using procedures similar to those set forth in § 53.4945-5(a)(5), that the distributee is described in sections 501(c)(3) and 170(b)(1)(A) (other than a disqualified supporting organization).
(d) Expenditure responsibility —(1) In general. For purposes of paragraph (a)(1)(ii)(B) of this section, a sponsoring organization will be treated as exercising expenditure responsibility if it follows the procedures set forth in § 53.4945-5(b) through (e) as modified by paragraph (d)(2) of this section.
(2) Special rules —(i) Non-applicability of certain Code provisions. References to sections 507, 4945(d), and 4948 of the Code do not apply.
(ii) Substituted terms. In applying § 53.4945-5(b) through (e), substitute sponsoring organization for private foundation, granting private foundation, granting foundation, grantor foundation, foundation, or grantor (but not for private foundation grantees in § 53.4945-5(c)); substitute distribution for grant or amount granted; substitute distributee for grantee; and substitute taxable distribution for taxable expenditure each place they appear.
(iii) Additional modifications. In lieu of § 53.4945-5(b)(3)(iv)( c ) and (b)(4)(iv)( c ), the distributee must agree not to use any of the funds to make any grant to an organization that does not comply with the expenditure responsibility requirements of this paragraph (d), to make any grant to a natural person, or to make any grant, loan, compensation, or other similar payment (as described in section 4958(c)(2) of the Code) to a donor, donor-advisor, or related person with respect to the donor advised fund from which the distribution that is the subject of the agreement is made.