What legal definitions and disclosure rules govern transfers between donor-advised funds, nonprofits, and federal candidates like Mark Kelly?
Executive summary
Federal tax and campaign‑finance law create clear limits: donor‑advised funds (DAFs) are 501(c)[1] accounts where donors retain advisory privileges but the sponsoring charity legally controls the assets, and DAFs cannot legally give to political campaigns or federal candidates [2] [3]. The IRS has issued broad proposed regulations (Nov. 2023) tightening definitions of “DAF,” “donor” and “donor‑advisor,” and proposing excise taxes on certain “taxable distributions,” while campaign law (FECA) independently bars charitable entities from contributing to federal campaigns [4] [3].
1. How the law defines donor‑advised funds — control vs. advisory
DAFs are accounts maintained by a 501(c)[1] sponsoring organization; donors receive immediate tax deductions when they contribute, but the sponsoring charity legally owns and controls the contributed assets even while the donor (or a designated advisor) typically retains nonbinding advisory privileges over investments and distributions [2] [4]. The statutory two‑prong test that has guided this — separate identification by donor contributions and donor advisory privileges — is central to whether an account is treated as a DAF [5] [6].
2. What the November 2023 proposed IRS rules change
The Treasury/IRS proposed regulations clarify and broaden who counts as a “donor‑advisor” and what counts as “advisory privileges,” using facts‑and‑circumstances tests (e.g., account statements, naming, sponsor marketing), and would identify certain distributions as “taxable distributions” subject to excise taxes under Section 4966 [4] [7]. Several legal analyses warn the proposed definitions could sweep in memorial funds, field‑of‑interest funds, and others not historically viewed as DAFs [6] [8].
3. Limits on deductible use and prohibited benefits
Federal rules bar DAF grants that confer “more than incidental” benefits to donors, and impose penalty excise taxes for improper benefit transactions or excess benefit arrangements—provisions sponsors and donors must heed to avoid penalties [9] [10]. The proposed regs also target compensation to personal investment advisers tied to donors by potentially treating payments as impermissible excess‑benefit transactions [11] [4].
4. Are DAFs allowed to fund political campaigns or candidates like Mark Kelly?
No: DAFs are part of 501(c)[1] public charities and fall under the Internal Revenue Code prohibition on political campaign activity; separately, Federal Election Campaign Act rules and FEC enforcement bar charities (and corporate entities) from contributing to federal candidates. Multiple sources state unequivocally that DAFs cannot legally donate to political campaigns or candidates [3] [12].
5. How transfers between nonprofits, DAFs, private foundations and campaigns are reported
Available reporting: DAFs and their sponsoring charities historically have had limited disclosure obligations about individual DAF account grantees and payout timing, meaning grants can be anonymized unless the sponsor chooses otherwise [13] [4]. By contrast, federal campaign committees and candidates (e.g., Mark Kelly’s committee) must report contributions to the FEC, and public trackers like OpenSecrets compile those filings, but the paths that money takes before reaching a campaign (e.g., whether money ever sat in a DAF) can be hard to trace if DAF sponsors don’t disclose grantee details [14] [13].
6. Practical compliance and enforcement risks for sponsors and donors
The proposed regs create enforcement levers: excise taxes on taxable distributions, penalties for excess benefit transactions, and expanded definitions that could subject more accounts to DAF rules—and thus to scrutiny if they produce impermissible benefits or indirect political spending [4] [11]. Commentators and institutions urge sponsors to tighten policies, document advisory relationships, and avoid compensating personal advisers from DAF assets to reduce exposure [7] [12].
7. Competing viewpoints and policy debates
Advocates for stronger rules say DAFs’ rapid growth (hundreds of billions in assets) and limited transparency enable delayed giving and anonymized flows that undercut charitable impact and campaign‑finance transparency; they favor payout mandates and more disclosure [15] [16]. Other stakeholders — DAF sponsors and donors — emphasize DAF flexibility, privacy, and tax benefits and caution that tighter rules could chill charitable giving or mischaracterize common philanthropic practices; many of the proposed regs focus on definitions rather than imposing immediate payout requirements [17] [6].
8. What this means for someone tracking donations to a federal candidate
If you are trying to trace whether money from a DAF reached a federal campaign: current law and the proposed regulations both make a direct DAF→candidate transfer unlawful, and DAF accounts are often not publicly transparent about grantees [3] [13]. To document political funding to a candidate like Mark Kelly, public FEC filings and independent aggregators such as OpenSecrets are the primary sources for contributions to the campaign itself; available sources do not mention any lawful mechanism by which a DAF could directly fund a federal candidate [14] [3].
Limitations: this summary relies on the IRS proposed rules and legal commentary in the provided materials; final regulations could change definitions, effective dates, and enforcement mechanics — those later developments are not covered in these sources [4] [7].