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Abstract: 

The Pension Protection Act of 2006 (PPA) amended the excise tax regime for independent investment advisors who provide services to host charities in connection with their donor-advised funds (DAFs). The law codified definitions of DAFs and “sponsoring organizations” (SORs) in new IRC Section 4966. In addition, the PPA expanded the excess benefit transaction (EBT) rules under Section 4958, which impose excise taxes on certain transactions between “applicable tax-exempt organizations’ and “disqualified persons” (DSPs). This article outlines the rules that apply in determining whether investment advisors to SORs are DSPs and are therefore subject to the EBT rules. The article discusses standards for service providers who enter into employment relationships with SORS, and also examines the rules and exceptions applicable to SOR advisors with independent contractor status.

Keywords:  investment advisors, sponsoring organizations, donor-advised funds, Pension Protection Act of 2006, excess benefit transaction, applicable tax-exempt organizations, disqualified persons, substantial influence, highly compensated

Affiliations:  1: Attorney at Law.