February: Expenditure Responsibilities for Grants from Donor-Advised Funds

Question

What are we legally required to have/follow in relation to expenditure responsibilities? Especially for grants coming from donor-advised funds.

Answer from Staff Counsel

The legal requirements of expenditure responsibility can be found in section 4945(h) of the Internal Revenue Code. It clarifies that the foundation is responsible to exert all reasonable efforts to establish adequate procedures to see that the grant is spent solely for the purpose for which it was made, obtain full and complete reports from the grantee on how the funds are spent, and make full and detailed reports regarding the grants to the IRS.

Expenditure responsibility is a requirement for all grants from donor-advised funds to non-charities. Although distributions from other fund types to non-charities don’t face the same legal requirements, it’s a best practice to adopt a due diligence policy which you can think of as “diet” expenditure responsibility or expenditure responsibility “light.” With any grant to a non-charity, no matter the fund type, you want to be sure that the assets are used solely for the agreed upon charitable purpose.

Council members are encouraged to send any legal inquiries to [email protected].