This is the second of a two-part series about the issues ACR members will discuss in meetings with congressional offices on July 8.
Members of the Alliance for Charitable Reform (ACR) leadership team are set to meet with members and staff of the House Ways and Means Committee and the Senate Finance Committee on Tuesday, July 8. The group will discuss some of the charity-related proposals in the tax reform discussion draft released earlier this year by House Ways and Means Chairman Dave Camp (R-MI). ACR thoroughly examined the Camp draft and engaged its members and colleagues in the field for feedback in evaluating these provisions. ACR ultimately identified four that raise serious concerns.
Our last post outlined the troubling provisions from the Camp draft that relate to the charitable deduction. In this post we will explain ACR’s concerns with the proposal related to donor-advised funds (DAFs) and identify the provisions in the Camp draft which ACR applauds.
According to the National Philanthropic Trust, 2012 saw a large increase in the number of DAFs to more than 201,000 accounts nationwide. Contributions to these DAFs also reached an all-time high in 2012, totaling over $13 billion and bringing the average account size to over $224,000. Because DAFs are controlled and administered by sponsoring public charities, their management costs are much less expensive than those needed to establish private foundations, which also have stringent reporting and operating requirements. Additionally, because funds from DAFs can quickly be disbursed, they are ideal for funding emergency situations and disaster relief.
The Camp draft would require all contributions to a DAF to be distributed to public charities within five years of receipt. If this requirement is not met, organizations that oversee these funds would face an excise tax equaling 20% of the contributions not distributed from the specific account within the five-year window.
Payout rates from DAFs from 2007 through 2012 annually exceeded 16%, according to the National Philanthropic Trust. When contrasted with the payout rate of a private foundation—which usually hovers around the statutory minimum of 5%—the requirement in the Camp draft appears misguided and unnecessary.
You can access additional information in ACR’s May 28 webinar that examined DAFs and the possible ramifications of the proposed requirement in the Camp draft.
What ACR Supports
While there are proposals in the Camp draft that are troubling, there are also proposals that ACR wholeheartedly supports. In addition to the fact that Chairman camp retained a charitable giving incentive for all three tax brackets, albeit a modified incentive, ACR also thanks the Chairman for:
- Extending the deadline to April 15 to make charitable contributions and receive a deduction for the prior year.
- Streamlining the private foundation (PF) excise tax on net investment income to a flat 1%. ACR has supported this measure for several years because the current two-rate structure has the practical effect of deterring foundations from increasing their grants during times of great need.
These two provisions were also recently passed in stand-alone bills by the House Ways and Means Committee. ACR will be expressing gratitude to lawmakers and their staffs in the July 8 congressional meetings for the inclusion of these policies.