It is rare to see anything bipartisan in Congress nowadays. This is why it bears notice that a bipartisan group of 11 members on the House Ways and Means Committee has released a “Dear Colleague” letter, challenging new legislation that could harm charitable giving.
The House version of the so-called Accelerating Charitable Efforts Act is a companion to the failed S.B. 1981, introduced last year by Sens. Angus King, a Maine independent, and Chuck Grassley, an Iowa Republican. Both measures would handcuff givers who have donor-advised funds, threaten donor privacy, and discriminate against family foundations.
Democrats and Republicans in Congress are sending a clear message that the agenda of a few will threaten the generous spirit of the public by clamping down on the flexible charitable giving vehicle called the donor-advised fund. While proponents of this new bill and its failed Senate companion may argue otherwise, there is no evidence to suggest donors are misusing these giving accounts to avoid granting funds to charities.
As irrevocable commitments, there is no opportunity to use donor-advised funds for personal enrichment or to shelter income without an ultimate gift to a 501(c)(3) charity. There’s also little evidence to suggest any sort of problem with giving anonymously through a donor-advised fund. Recent research by Howard Husock of the American Enterprise Institute found anonymous donor-advised fund gifts are rare and typically go to noncontroversial causes such as the American Red Cross. As the Supreme Court decided in Americans for Prosperity Foundation v. Bonta, it is unconstitutional for a state to demand donor information, and such a demand is also likely to chill charitable giving. The provisions in this legislation would do just that.
Despite no evidence of a problem with current law, the ACE Act would impose arbitrary deadlines on these gifts, enforced with a 50% tax on charitable assets, ignoring the importance of individual freedom and the choice to give how, when, and where a donor sees fit. Restricting philanthropic freedom will decelerate charitable giving at a time when we need the services of our charitable sector the most. Further, the administrative burden the proposed rules would impose on donor-advised fund sponsors, themselves public charities, would siphon funds away from helping our communities.
Donor-advised funds aren’t the only irrational target of this legislation. Donor privacy is also undermined in several spots. One of the most concerning pieces relates to the public support test. Under current law, public charities must demonstrate broad support from the public to obtain and retain public charity status. This bill would treat all anonymous donor-advised fund contributions received from sponsoring organizations as coming from one single person, whether that is the case or not. The clear goal here is to create a backdoor donor disclosure mandate.
Finally, this bill would restrict the ability of private foundations. One of these misguided restrictions would discriminate against relatives who work at their own family’s foundations by treating them differently from their co-workers as well as employees of nonfamily foundations by prohibiting family foundations from including the salaries and expenses of working family members as part of their administrative expenses.
Family foundations make up over half of all private foundations and support critical needs in America such as addressing mental health initiatives, improving K-12 education, and pursuing environmental conservation. This change would make it harder for family foundations to continue the crucial work of supporting our communities.
At the Philanthropy Roundtable, we see firsthand the crucial work foundations do to support those in need, and we wondered whether there was any data-based merit behind this proposal. So, we asked our researchers: Do family foundations have higher relative administrative expenses than their nonfamily-run counterparts?
In a study commissioned by the Philanthropy Roundtable, data revealed family foundations spend a smaller share of their qualifying distributions on charitable overhead expenses than nonfamily foundations. On average, the family foundations studied spent about 11% of their qualifying distributions on administrative expenses, while the nonfamily foundations spent 15%. Far from showing some sort of widespread abuse of salaries and expenses, the data showed family foundations are good stewards of charitable funds and that there is little justification for punishing them with discriminatory expensing rules.
Laws and regulations are already in place to prevent family members from inappropriately benefiting from foundation assets. This study suggests the existing rules against self-dealing are working.
When it comes to lawmaking, let’s avoid making it less appealing to give to charities, whether that is by restricting donor-advised funds, forcing donors to be public, or discriminating against those in the charitable sector who share a family tree with foundation founders. This is the time to encourage and enable those helping the causes and communities in need — not to penalize givers with unnecessary and draconian regulations.
Elizabeth McGuigan is director of policy at the Philanthropy Roundtable.
