Don't Expand DAFs Without a Payout Requirement!
At a time when charitable giving doesn't look like a priority topic in Washington, there is nonetheless a bill in Congress that would expand giving to donor-advised funds (DAFs), possibly displacing giving that would otherwise go directly to nonprofits.
Foundations and donor-advised fund sponsors are supporting the bill. It is high time for the nonprofit wing of the nonprofit sector to speak up to prevent a further diversion of charitable funds to the financial services industry.
So what is the bill?
Representatives Adrian Smith (R-NE) and Jimmy Panetta (D-CA) introduced the IRA Charitable Rollover Facilitation and Enhancement Act HR 2891 and it now sits in the House Ways and Means Committee and the Senate Finance Committee – both important gatekeepers. So far 40 members of Congress have signed on.
Individuals aged 70.5 and older can choose to assign some of their Required Minimum Distribution (RMD) from their IRA to a charitable organization, rather than receiving it as taxable income. Notably, the law currently does not allow either private foundations or donor-advised funds to be considered qualified for such distributions (Qualified Charitable Distributions) The bill removes DAFs from the exclusion, and some people will choose to rollover their RMDs into DAFs rather than into operating nonprofits.
Congress has not issued an official cost estimate, but we estimate the tax expenditure (cost in taxes lost) to be $5 billion - $15 billion over the next ten years.
Taking sides
Expectedly, institutional philanthropy has come out in support through the Council on Foundations, the National Philanthropic Trust, United Philanthropy Forum, and Philanthropy California. Supporters of the bill see it as offering yet another vehicle to prospective donors . . . and why not?
Our concern is that giving to DAFs is giving to a holding pen, not to a nonprofit acting in its community and participating in the economy. QCDs are an efficient and direct pipeline of water from individual donors to nonprofits. This bill in effect enables the creation of storage reservoirs between the donor and the useful public benefit—a subsidized reservoir that is likely to get fuller and fuller while less and less gets to address current public needs.
The real danger
It's unlikely that this bill would get through Congress as a stand-alone. The more likely danger is that it would be folded into the next Big Tax Bill, thereby giving philanthropy and the wealthiest in our society a "charitable" reason to support what is likely to be a harmful bill at a time when the American middle and lower classes are already seeing a shrinking future.
Nonprofits such as the Independent Sector, the National Council of Nonprofits, the United Way and others have long positioned themselves as policy leaders for nonprofits. We encourage them to speak up for requiring charitable funds to actively benefit the public, not the financial services industry. This is the perfect time to advocate for this provision, but ONLY if it includes a payout requirement such as 15% per year, per account.
And in case you are looking for a slogan, how about this one: "Don't Expand DAFs Without Payout Requirements!"
See also:
The Philanthropy Project is Not Anti-DAF, and Here's Why
Who is Blocking Philanthropic Reform?
