Last month, the IRS held a hearing on potential donor-advised funds (DAF) regulations. Various members from across the charitable sector, including Philanthropy Roundtable’s Senior Vice President Elizabeth McGuigan, testified about their concerns. The hearing centered on the key definitions and the proposed implementation date for the rules.
DAFs are personal charitable giving vehicles that allow any American to invest thoughtfully and strategically in the charities and causes they care about most. DAFs offer donors flexibility in their grantmaking approach. Some donors choose to distribute most of their contributions within the initial years of the account, while others opt to allow the charitable funds to accumulate before disbursing them. Importantly, every dollar contributed to a DAF is irrevocable and entirely committed to charitable giving.
The Roundtable is chiefly concerned with three elements of the proposed IRS regulations: the short implementation timelines, the limitations of how investment advisers can support clients with their DAFs and the overly broad distribution rules that appear to penalize essential expenses like legal counseling or accounting necessary to DAF operation.
In a letter released shortly before the IRS hearing, 33 members of the House Ways and Means Committee expressed concerns to Treasury Secretary Janet Yellen that the proposed regulations could have harmful consequences on our nation’s philanthropic sector.
Both the Ways and Means letter and testimony at the IRS hearing said more restraints on DAFs would mean fewer dollars for those in need. Criticisms also rightly identify a pattern of overly broad definitions within the regulations. Muddling the definitions of both “donor-advised funds” and “taxable distributions,” is “confusing for donors, expensive for sponsors and [will] lead to less money getting to end-use charities” according to the Ways and Means letter.
DAFs are uniquely positioned to allow donors to build a longer-term strategy or a rainy-day fund for the charities they support. Data suggest DAFs are particularly impactful during periods of crisis and necessity such as the COVID-19 pandemic. Thus, proposed regulations should not hinder the effectiveness or adaptability of DAFs.
It is encouraging to see bipartisan congressional support united behind the charitable sector in its fight to protect charitable giving and our most vulnerable communities.
