How the Big Beautiful Bill Could Shrink Foundations and Increase DAFs

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A relatively unnoticed provision in the House version of Trump’s colossal bill is a tax change that is supposed to increase tax revenues by almost $16 billion, in part to offset the big tax breaks for the wealthiest Americans.

This new tax? A tax on private foundation assets (a wealth tax of a sort).

• Foundations with less than $50 million in assets: no increases; tax remains at current 1.39%
• Foundations with assets between $50 million and $250 million: raise to $2.78%
• Foundations with assets between $250 million and $5 billion: raise to 5%
• Foundations with assets above $5 billion: raise to 10%

But there’s a giant available loophole in the House version right in front of us.

A private foundation can transfer a large chunk of its assets to an account at a donor-advised fund sponsor, while effectively still controlling how the assets are invested, what grants are made, their purposes, and how much money (or how little) is put into active charitable use. For example, if a foundation moves $20 million into a DAF, they would pay $0 in taxes on that $20 million. And the foundation’s asset size would shrink to a lower tax bracket.

And as an extra enticement, the foundation would have no payout requirement on those funds, and no longer have to publicly disclose what grants, beneficiaries or amounts it made through its donor-advised fund.

Industry publication Chief Investment Officer predicts exactly that. In other words, if the bill passes the Senate, the tax increase won’t bring in the promised revenue, and it will likely move billions of foundation dollars into donor-advised funds where they are even more hidden than where they are now.

While the Senate left out the increased tax in its version, the final result is unknown, and could fall somewhere in between.

We know that some foundations already make only one grant per year – to their donor-advised fund. The Big Beautiful bill calls it “raising tax revenue” but in this one area at least it looks more like an incentive to hide money.

The Philanthropy Project believes that charitable funds should benefit the public. Join the movement/subscribe here. Email us info@philanthropyproject.net. We want to hear the good, bad, and the ugly from you. — Jan Masaoka and Jon Pratt, Co-Chairs, Philanthropy Project