How the Big Beautiful Bill Could Shrink Foundations and Increase DAFs
Philanthropy Project is experimenting with shorter, one-topic emails rather than our usual newsletter with several articles.
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
Countering DOGE Overreach — DC AG urged to secure charitable assets of Institute for Peace Endowment
Peaceful Cherry Blossom Festival walk soured by security guards’ No Trespassing edict
On April 2 I was glad to be in DC for a nonprofit meeting, and my spouse Deb and I were on our way back from the Cherry Blossom Festival. After the Lincoln Memorial we wanted to see the former home of the United States Institute for Peace (USIP). (We knew that the Institute’s building had been closed by a presidential executive order, and that Elon musk’s DOGE team had shown up on March 17 with FBI agents, and for some reason the DC police, who picked the locks and evicted the staff.)
As we walked in front of the impressive domed Institute building, Deb and I could see a sign on the entrance doors to the left. There was no other indication of what was going on. When we got closer it said, NO TRESPASSING, a security guard popped out and firmly told us we had to leave immediately — this was private property! Deb and I were both taken aback because this seemed odd and out of character for most interactions in the capital Mall area. We had a brief conversation, said why we were interested, but no, the guard couldn’t say anything about who owns the building or what it was for, and we had to leave right away.
The Institute of Peace is/was a Congressionally chartered entity under legislation signed by Pres. Ronald Reagan, funded by Congress, with its Board of Directors appointed by the president along with secretaries of State, Defense, and president of the National Defense University. President Trump used this authority to terminate the board, and fire its 300 staff. USIP leadership is actively contesting the legality of these moves in federal court, citing the agency's independent structure, but facing a slow process. (Link to USIP leadership lawsuit: https://storage.courtlistener.com/recap/gov.uscourts.dcd.279421/gov.uscourts.dcd.279421.1.0.pdf)
As I stated in my complaint with the AG’s office (case number 00074146) for the charitable nonprofit USIP Endowment, this action does not automatically authorize transfer of the Endowment’s assets to the control of DOGE. DC Law § 44–1635. Release or modification of restrictions on management, investment, or purpose (based on the Uniform Prudent Management of Institutional Funds Act (UPMIFA) of 2007) requires “notify(ing) the Attorney General for the District of Columbia of the application, and the Attorney General for the District of Columbia shall be given an opportunity to be heard.” UMIFA and common law give the attorney general standing to protect the public’s charitable assets, and to advocate for their preservation for their proper charitable purposes.
While the administration and Congress exercise broad authority over federal agencies (and now are exercising that power to the max), there also exists a broad array of parallel charitable campaigns and contributions for U.S. parks, arts and culture, children’s services, scientific research, religious activity and more, over which government should not seize control or ownership. The donors to these causes (including the USIP Endowment), should be able to count on their lawful voluntary contributions being used for what the donors intended.
A healthy democracy benefits from an independent nonprofit sector, not under the foot of government, where people can choose which organizations they want to support, and can trust that their donations won’t be seized when out of favor. We count on each of the state attorney’s general, and an independent judiciary, as well as a properly limited executive branch, to make that true. Allowing plain citizens to pool their resources is an essential element of freedom of association, our right to join together, and defending that is worth the eternal vigilance required.
