The Philanthropy Roundtable and Alliance for Charitable Reform believe that anonymous giving has long been central to American philanthropy. There are many reasons why philanthropists wish to keep their names out of the spotlight. They might want to keep their personal security risk low, keep the spotlight on the charity’s work, or even just keep their name from “owning” a cause or an object that truly belongs to the people. Whatever their reasons for doing so, private giving keeps the entrepreneurial spirit alive, and it benefits us all in more ways than we will ever know.
Donor-advised funds are an important philanthropic tool that allow donors to maintain their privacy should they want their giving to remain anonymous. However, as donations to DAFs have grown over the past several years, there have been growing critiques around the privacy they allow to donors. As policymakers and academics propose changes that could infringe on that privacy, ACR stands ready to defend philanthropists and their freedom to remain private.
Proposed Regulations of Donor-Advised Funds
In 2017, Treasury issued a Notice requesting comments on a variety of issues related to donor-advised funds (DAFs), with the goal of helping the IRS more easily enforce current laws around DAFs and prevent abuse. We understand Treasury had concerns that private foundations might use DAFs to avoid their 5 percent payout requirement, or that anonymous DAF donors could use the giving tool to meet the public support test for a public charity.
In response to the questions about private foundation use of DAFs, The Philanthropy Roundtable submitted comments on a host of legitimate reasons private foundations use them, including safety and security, collaborating with other organizations, funding outside normal areas and knowledge of the local community. ACR also met with Treasury officials to emphasize the importance of donor privacy when making rules around the public support test, which the Notice suggested could include looking through a donor-advised fund sponsor to the original donor when determining public support, something that poses huge donor privacy concerns.
We expect Treasury to issue proposed regulations this spring, and ACR will be prepared to submit further comments as appropriate.
Donor-Advised Fund Legislation in California
In 2019, California Assemblywoman Buffy Wicks introduced A.B. 1712, a bill that would give the Attorney General broad authority to seek information on donor-advised funds. The bill was pulled from consideration in 2019 due to many philanthropy organizations raising donor privacy concerns. It was then reconsidered in January, and the sponsor responded to donor privacy concerns with changes to address them, including an amendment that would exclude personal information from reporting requirements. However, it is ACR’s view that those changes didn’t go far enough to protect donor privacy, as there is certain information that may not be personal in nature but could reasonably identify a donor (e.g. a large gift of stock in a well-known company). The amended bill was eventually pulled from consideration in January.
In February, the sponsor introduced a new bill, A.B. 2936, that would create a new classification for DAFs and sponsoring organizations, allowing the Attorney General to engage in rulemaking to implement reporting requirements. The bill passed the full Assembly in early June and was then sent to the Senate. However, due to a shortened legislative window and a laundry list of bills to consider, the Senate Judiciary Committee chose not to consider the bill this year.
Different than A.B. 1712, this bill did not dictate what information the AG must collect. However, protecting donor freedom and privacy remains our priority, so we submitted a letter asking that donor information be protected. Although the bill is unlikely to be considered in 2020, we continue to monitor the issue in California and other states as we head into 2021.
Donor-Advised Fund Facts and Figures
The Manhattan Institute defines donor-advised funds (DAFs) as individual charitable-giving accounts housed within “sponsoring organizations”—notably, national DAF sponsoring organizations, community foundations, and single-issue charities. DAFs allow donors to deposit cash and other assets and avail themselves of a federal tax deduction, for the same tax year, for the full value of their donation. With the exception of overhead—around 1% annually for NDAF-based DAFs—donations, once deposited, may be used only for charitable purposes. Account holders can then, at their discretion, recommend grants from such funds over the remainder of their lifetimes: hence the name “donor-advised.” DAFs can also be inherited.
According to the National Philanthropic Trust, 2018 saw a large increase in the number of DAFs to more than 728,000 accounts nationwide. Contributions to these DAFs also reached an all-time high in 2018, totaling over $37 billion with an average account size of $166,000. 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.
In 2014, then-House Ways and Means Chairman Dave Camp (R-MI) released his tax reform discussion draft. Among the provisions in the draft was a requirement that 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.
The average payout rate from DAFs in 2018 exceeded 20%, 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, which is likely why it hasn’t been included in more recent legislative proposals.