Exempt Organizations Advisory - IRS Issues Interim Guidance on Provisions in Pension Protection Act of 2006 Relating to Supporting Organizations & Donor Advised Funds

On December 4, 2006, the IRS issued Notice 2006-109, providing interim guidance on requirements enacted as part of the Pension Protection Act of 2006 (“PPA”) that affect supporting organizations, donor advised funds, and private foundations that make grants to supporting organizations.  The IRS issued the Notice to address a limited number of issues that the agency believes warrant immediate guidance, and stated in the notice that it will be providing additional guidance, including regulations, under these provisions of the PPA.

The Notice provides guidance on four aspects of the new rules enacted as part of the PPA:  

1. the criteria that may be used by private foundations in making distributions to supporting organizations; the criteria for determining whether a supporting organization, or any of its supported organizations, are controlled by disqualified persons; and guidance with respect to donor advised funds that make grants to supporting organizations;
2. the date of applicability for the new section 4958(c)(3) excise tax on certain excess benefit transactions involving supporting organizations;
3. an exclusion from the definition of “donor-advised fund” for certain employer-sponsored disaster relief funds; and
4. clarification on how the IRS will apply the new section 4966(a) excise taxes with respect to payments made pursuant to educational grants awarded prior to the date of enactment of the PPA.  

A more detailed explanation of Notice 2006-109 is available on S&J’s website.   The text of the Notice is available on the IRS website, Charities & Nonprofits section, under the heading "New Law Revises EO Tax Rules."

The Exempt Organization Advisory is a general summary of the law and is not intended as specific legal advice for any organization.

Internal Revenue Service - Circular 230 Disclosure: As provided for in Treasury regulations, advice (if any) relating to federal taxes that is contained in this communication (including attachments) is not intended or written to be used, and cannot be used, for the purpose of (1) avoiding penalties under the Internal Revenue Code or (2) promoting, marketing or recommending to another party any plan or arrangement addressed herein.

Questions and comments about the Exempt Organizations Advisory are always welcome and should be sent to bstone@steptoe.com.