Pension Protection Act (PPA) and Advised Fund Contributions Fact Sheet

8/15/2011 Report


As part of our service to the community, we want to be sure that donors and the nonprofit organizations they support understand the federal rules governing grants from donor advised funds and the penalties for violating them. These rules were expanded under the Pension Protection Act of 2006 (PPA).  

What is an Advised Fund?
An Advised Fund is a unique giving instrument that offers donors the opportunity to create an easy-to-establish, low cost, flexible vehicle for charitable giving as an alternative to direct giving or creating a private foundation. To establish a fund, a donor makes a gift to a sponsoring nonprofit organization, such as The Oregon Community Foundation (OCF). Because the fund is housed in a public charity, donors receive the maximum tax deduction available, while avoiding excise taxes and other restrictions imposed on private foundations.The donor may include individuals, families or corporations who name individuals, to offer advice on how the sponsoring organization should grant out the donated funds. The advice is not binding but is closely considered by the sponsoring organization’s Board of Directors when it makes grant decisions.

Did you know?

  • OCF Advised Funds cannot pay a personal pledge through an advised fund grant. However, donors can recommend a single grant or a multi-year grant from an advised fund, as long as it does not satisfy a personal pledge.
  • The Pension Protection Act prohibits any person related to an advised fund donor or advisor from receiving any benefits of monetary value as the result of a grant. Examples of prohibited benefits include, but are not limited to:  private receptions where food and libations are served (even if the refreshments have been donated), seating at ticketed fundraising events, parking privileges, names entered in drawings that result in an award (even if that award has been donated) and tickets to performances or public events.  
  • Violations may result in a tax on the organization who benefits from the prohibited distribution (non-profit organization), the person who makes the grant recommendation and on the person receiving the prohibited benefit of up to 125 percent of the amount of the prohibited benefit. The IRS can also impose a tax on OCF for making a distribution that confers a prohibited benefit.