The ABA Tax Section has submitted comments to the IRS in response to Notice 2007-21 on the Treasury Study on Donor Advised Funds and Supporting Organizations:

The Pension Protection Act of 2006, enacted on August 17, 2006, contained a number of provisions relating to charitable organizations classified as section 509(a)(3) supporting organizations (“SOs”), and donor advised funds held by charitable organizations. Section 1226 of the Act requires the Treasury and the Service to conduct a study on the operations of donor advised funds and SOs. On February 2, 2007, the Service issued Notice 2007-21, which invites public comment in connection with that study on a number of issues relating to donor advised funds and SOs. Our specific recommendations are as follows:

1. With respect to donor advised funds, we recommend that Treasury not impose any distribution requirement, either on an aggregate basis or on a fund-by-fund basis, on sponsoring organizations that hold donor advised funds. If any distribution requirement is deemed necessary, however, we recommend that it be imposed on an aggregate, rather than on a fund-by-fund basis. We further recommend that to the extent that any distribution requirement is based on the value of assets within a donor advised fund or funds, the requirement should include rules similar to those applicable to private foundations with respect to the distribution requirements under section 4942.
2. With respect to SOs, we recommend that Treasury consider applying a distribution requirement for non-functionally integrated Type III SOs similar to that under current law for private operating foundations, i.e., the lesser of 85% of net income or 85% of the fair market value of assets (i.e., 4¼% of asset value), with a minimum distribution requirement of 3⅓% of asset value. We further recommend that any such distribution requirement be phased in over a period of years, and that Treasury provide special transition rules for charitable trusts that must institute judicial or other proceedings under state law in order to comply with new federal tax law distribution requirements. Finally, we recommend that Treasury provide rules similar to those applicable to private foundations with respect to the distribution requirements under section 4942.