Saturday, July 17, 2021
By Paul Caron
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Following up on my previous posts (links below): Chronicle of Philanthropy, New Study Shows That Majority of Donor-Advised Funds Are Sending Little or No Money to Charity Every Year: One of the first studies ever to look at donor-advised funds on a micro level has found that every year, 37 percent on average don’t distribute any money and over half give less than 5 percent of their assets. The findings are fueling demands for passage of a Senate bill that would spur donors to do more to channel their money out of the funds faster. The study of donor-advised funds at Michigan community foundations found that in 2020, 35 percent of those funds distributed no money, 22 percent distributed less than 5 percent of their assets, and 43 percent distributed more than 5 percent. Across the entire four-year period covered in the study — 2017 through 2020 — 86 percent of the advised-fund accounts gave money to working charities.
The findings come amid a growing debate over legislation proposed by Sen. Angus King, a Maine independent, and Sen. Charles Grassley, Republican of Iowa, that would add new incentives to encourage donors to give fast. For instance, donors would get an immediate tax break if they distributed their funds within 15 years, while delaying tax benefits for funds distributed beyond that span and requiring all funds to be spent within 50 years.
Proponents of the legislation have seized on the results as evidence that the measure is needed. At issue is the lack of a requirement for donor-advised funds to give money to charities similar to laws requiring private foundations to distribute at least 5 percent of their assets to charity every year. “If society is going to subsidize through the tax code the creation of donor-advised funds and private foundations, then there is a responsibility that those vehicles transmit resources into the community in a timely manner,” John Arnold, a prominent philanthropist pushing for Congress to change regulations for donor-advised funds, told the Chronicle. Arnold is a founder of the Initiative to Accelerate Charitable Giving, a group of donors, scholars, and foundation leaders who drafted many of the ideas included in the King-Grassley measure.
“Opponents have said the bill is a solution in search of a problem, and this report explicitly describes the problem,” said Arnold. “There are too many DAF accounts that have received a tax benefit and are not distributing resources into the community.”
Not everybody agrees with that analysis.
“One shouldn’t assume that because a DAF didn’t make a gift in a particular year that the donors were basically taking advantage of the tax code,” said Leslie Lenkowsky, a professor emeritus at the Indiana University Lilly School of Philanthropy and self-described “skeptic” of the Initiative to Accelerate Charitable Giving. He noted that the 15 years that the King-Grassley bill allows for an immediate tax break is a sign that nobody thinks all spending needs to happen right away.
Prior TaxProf Blog coverage:
Wall Street Journal op-ed, The Left Wants A Philanthropy Of The Few
Chronicle of Philanthropy op-ed, Conservatives Should Applaud — Not Fight — Efforts To Change Philanthropic Giving Rules
Ed Zelinsky (Cardozo), A Response to the Initiative to Accelerate Charitable Giving
New York Times, How Long Should It Take To Give Away Millions?