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?
New Recommended Resource:
Independent DAF Report Pulls Curtain Back
The Independent Report on DAFs(28 pages, Charity Reform Initiative, Institute for Policy Studies, 2025)By Chuck Collins, Bella DeVaan, Helen Flannery, Dan Petegorsky
Go directly to report →
The remarkable growth in charitable funds going to (and through) donor advised funds (DAFs) triggers high hopes and deep curiosity across the nonprofit sector, especially among fundraisers. Where do these monies come from? Where are they going? How are they being used? Who is deciding, and who benefits? How can they be contacted?
As the $250 billion DAF sponsor industry has grown to represent 10 of the largest 20 charities in the US, and receives, one out of five charitable tax deduction dollars, so a growing literature is needed to explain this world.
For 18 years the go-to general source for DAF data has been The National Philanthropic Trust, a Pennsylvania-based public charity that each year issues an annual publication, most recently called the 2024 DAF Report. The NPT report provides baseline numbers and trends about the DAF sponsor industry, but it’s reporting only goes so far, as NPT is itself a major DAF sponsor ($30 billion assets) and an industry advocate.
The Independent Report on DAFs is a welcome and original contribution to help educate the public and charitable fundraisers about the role and mysteries of DAFs in the charitable landscape. Going beyond the well-documented growth of funds going to and from DAFs, the Independent Report’s best contributions are its willingness to share source names by reporting which DAF sponsors are included, and in what category, in its data. This is one of the biggest gaps in the NPT reports, not knowing which sponsors are compared or conflated, blurring the lines and blurring the results on issues such as payout rates. We are especially impressed with the transparency and open-source aspect: all of the Independent Report’s sponsor data is available for public download.
Traditionally reporting on DAF sponsors has categorized three types:
- National (or commercial) such as Fidelity, Vanguard, NPT and Charles Schwab
- Single issue sponsors (such as the Nature Conservancy or Ohio State University
- Community foundations
The Independent DAF report adds a valuable new fourth category of donation processors, entities formed to process thousands of small dollar donations, often crowd-sourced or through a payroll or workplace plan. The report concludes that combining payment processors with national sponsors can “understate national sponsor DAF account sizes by as much as 80 percent.” By separating these donation processors’ ability to deliver quick pass-through in contrast to national sponsors, a better picture is developed for payout rates for various DAF sponsors. Since payout is a principal point of contention for DAF’s, which currently have no minimum payout rate unlike private foundations, this has been contested ground over whether Congress should require some floor for getting DAF funds into active public benefit.
The report authors give detailed treatment to the various ways DAF payout is calculated by industry groups and by the IRS, and the issue of continued accumulation of DAF assets, especially by the commercial sponsors.
Also noted:
- DAF-to-DAF grants accounted for an estimated $4.4 billion in 2023, which affords no further tax or public benefit advantage, and has no clear rationale.
- Private foundations transferred at least an estimated $3.2 billion in grants to national donor advised fund sponsors in 2022, evading their 5% payout requirement and disclosure rules for private foundations.
- Community foundations appear to be at a disadvantage in comparison to national DAF sponsors, seeing a 9% decrease in contributions and smallest growth of assets, while at the same time actively increasing their grants by 56%.
Kudos to IPS for establishing a new go-to resource on donor-advised funds, one that is independently funded (not by a DAF sponsor), and providing its analysis for everyone to see, scrutinize, and …
California’s Head of Charities: A Chat About Donor-Advised Funds
Jan Masaoka interviews Tania Ibañez:
Tania Ibañez recently retired from the California Attorney General’s office where she served as the Senior Assistant Attorney General of the Charitable Trust Division. In short, she was the top state official on nonprofits and foundations.
During her tenure, Tania’s office worked on landmark registration regulating fundraising platforms such as PayPal and GoFundMe. Her office was called upon to comment on bills addressing donor-advised fund transparency, conversion of nonprofit universities to for-profit status, how non-cash donations (such as pharmaceuticals) are valued on Form 990, and many other high-impact, urgent issues related to nonprofits, philanthropy and endowments.
Now that she’s presumably sitting under beach umbrellas sipping colorful beverages (not!), we took the opportunity to chat with her. In addition to the information, we hope you gain an appreciation for Tania’s toughness and straightforwardness. This interview includes information she presented in a webinar held by the California Association of Nonprofits (CalNonprofits), and has been lightly edited for length and clarity.
Q: Your office conducted a “mandatory” study of large donor-advised fund sponsors – to my knowledge the only such data collection ever done by a government agency. What kinds of DAF sponsors were required to return the survey?
We identified 74 sponsors of two types for the project:
- California-based DAF sponsors with over $10 million in assets
- National DAF sponsors with over $200 million in assets and registered as doing business in California
We asked for information per year for three years.
Q: What types of DAF sponsors did you find?
Of our sample, 51% were community foundations, 30% were “mission-based,” and 19% were commercial sponsors.
Q: Let me ask a little more about “mission-based,” which I think is similar to the “single purpose” term used by the National Philanthropic Trust in its research reports. I understand that many university DAF programs have requirements where, for instance, 30% of the DAF amount has to go to university programs, but the donor can send the other 70% anywhere. Yet these are still called “mission-based” and “single purpose”?
Well, yes, terminology is a problem!
Q: What surprised you the most in the survey findings?
Comparative payout rates. Community foundations had lower DAF payout rates than the commercial funds when most people expected the opposite.
Q: That is a big headline. What else?
I was disappointed that surveyed entities did not say they stepped up spending in response to COVID. When we asked, “What did you do about COVID?” we got answers like, “We let our employees work from home.” I was hoping to see more people encouraging their donors to be more generous – maybe give at least 20% per year.
Q: One area of concern is how much money going into donor-advised funds is not “new contributions” but comes from transfers from private foundations and other DAFs. What did you learn in the survey about this?
These transfers are substantial. In the third year reported, the sponsors in the sample received $1.7 billion from private foundations. And California DAF sponsors had higher percentages from private foundations (8% of receipts) than national DAF sponsors (4%).
Q: Are DAFs being used to avoid private foundations’ mandatory expenditure requirements?
It certainly looks like it. There have been several high-profile public examples such as transfers from Larry Page’s private foundation and Elon Musk’s foundation.
Q: The proposed ACE Act in Congress last year would have meant that private foundation transfers to DAFs would not count towards the 5% payout requirement unless the funds come out of the DAF by the end of the year following the contribution. What is your reaction to that idea?
Sounds good to me!
Q: You mentioned that community foundation DAFs had lower payout rates than commercial ones. Can you say more about that?
Well, first, grant ratios were all over the map. Most of the sponsors fell easily into two categories: they either gave less than 5% or gave out more than 50%. Three things we found:
- Mission-based sponsors almost entirely had grant ratios of more than 50%.
- Commercial sponsors were in the “less than 5%” and “more than 50%” categories about evenly split.
- Community foundations had a greater share of grant ratios less than 5% than greater than 50%.
Q: Where can I find the findings that you published from the survey?
https://oag.ca.gov/system/files/media/donor-advised-funds-overview.pdf
Q: At recent conferences of state attorney generals and charity officials there has been a lot of talk about the role of state officials (compared to federal) in philanthropic regulation. States can’t change the IRS Tax Code. So what can state officials do?
States need to start asking different questions. How does philanthropy and charitable deductions impact the state budget? How much taxes are not being paid due to the charitable deduction on funds not in active use? How much in charitable funds are just parked and not benefiting the residents of the state? Clarity: what is their rate of distribution?
Can AGs do more to find out if transfers to DAFs from foundations are complying with donor restrictions? For example, if a donor gives money to a foundation specifying it go to scholarships, and the foundation transfers funds to a DAF, how can the AG find out if that DAF then gave out that money in scholarships?
State officials can require responses to requests for detailed information. How can people write off donations but the donation isn’t really supporting any charity?
Part of me thinks we don't want to discourage donations. But is there a comparable benefit to the public If you're not actually giving it to a charity that's on the ground?
Q: So why isn’t more being done about this?
Well, lots of people are making money from this situation and no one wants to anger the big commercial funds like Fidelity or Schwab. The people that run those institutions are also big donors to political candidates of both parties.
The AG in any state — IF he's interested — could easily go through the regulatory process and develop a form that would ask these questions. Have to go through a public comment period. Don't need a legislative change. A lot of AGs feel that charities are already under enough scrutiny and legislation. Think tanks and foundations like to wine and dine elected officials, invite them to their events. That's the reality. Nobody wants to make things more difficult for charities.
Charities that get money from DAFs are often good friends with the DAF sponsors . Elon Musk and other people want to conceal who they support. At the end of the day it's what are the tax benefits worth? How much in taxes does the individual save, and how much did the USA benefit from those tax savings?
The Pension Protection Act of 2006 (P.L. 109-280) bans donor-advised funds from making grants to designated individuals. That was low-hanging fruit. How many times does the IRS audit who a foundation gave a scholarship to?
Q What about endowed DAFs which are being increasingly promoted by DAF sponsors?
Hasn't hit my radar screen. Right now at least nothing is stopping you from giving out more.
Q: What are your thoughts about institutions now providing both DAFs and fiscal sponsorship?
Terrible. You're opening the can of self-dealing.That's going to blow up one of these days.
Q: What advice do you have for us on DAF reform?
You need to see if there's an appetite for it in the Attorney General's office or the Franchise Tax Board.