On May 28, the Alliance for Charitable Reform hosted a webinar discussing House Ways and Means Chairman Dave Camp’s (R-MI) tax code reform discussion draft and its proposed changes to donor-advised funds. Presenters included Jeff Zysik of Donors Trust, Brent Christopher of the Communities Foundation of Texas and Benjamin Pierce of Vanguard Charitable Endowment Program.
The current iteration of Camp’s draft would affect donor-advised funds (DAFs) and their sponsoring organizations in the following ways:
- All contributions to a DAF would have to be distributed to public charities within five years.
- If this requirement is not met, organizations that host these funds would face an excise tax equaling 20% of the contributions not distributed within the five-year window.
Each of the presenters expressed the view that DAFs serve as a popular, flexible, low-cost resource for those looking to develop and carry out their philanthropic goals. However, there are several ways Camp’s proposed changes could reduce the viability of DAFs, including:
- Five years is a relatively short amount of time to gain an understanding of community needs and strategically align dollars to those issues.
- Many DAFs are funded through liquidity events, such as a real estate sale, and it would be difficult to responsibly spend down such a large contribution within Camp’s proposed timeframe.
- While DAFs are often presented as an inexpensive alternative to launching a private foundation, the proposed DAF payout requirement might seem a disadvantage compared to the 5% minimum annual payout for a private foundation. This could mean a higher entry cost into traditional channels of strategic, structured philanthropy.
As this proposal is part of a discussion draft, there are still opportunities for individuals and organizations to share their opinions with legislators before any formal action occurs.
Additional information:
ACR Webinar Focuses on Donor-Advised Funds
PDF of Tax Reform Act of 2014 discussion draft (DAF proposal in Sec. 5203)
