In June, Senators Angus King (I-Maine) and Charles Grassley (R-Iowa) introduced S. 1981, the “Accelerating Charitable Efforts (ACE) Act.” Rather than increase charitable giving, this bill would impose unnecessary burdens on giving and create a new, 50 percent tax.
Specifically, the bill would require that all donor-advised funds (DAFs) be paid out within 15 years, or 50 years for those not claiming the charitable tax deduction. If DAFs do not pay out within the arbitrary 15-year timeline, they would face a 50 percent tax on the charitable funds. The ACE Act would also implement new rules against anonymous giving, threatening donor privacy and create more tax complexity for charities.
Donor-advised funds (DAFs) are giving accounts created and maintained by individual donors. Many DAF donors keep money in these funds for long periods of time in order to strategically plan their giving and allow it to appreciate over time, enabling them to make even larger donations. Perhaps, they wish to pass on their funds to their children, save up for a huge charitable project they’ve always dreamed of organizing, or save funds so they can donate in their retirement.
Ultimately, donors’ plans are their business. Once money is put into these funds, it is irrevocably committed to charitable giving. The government has no place deciding when it’s best these funds are paid out, especially when these funds must eventually be used for charitable giving.
It is untrue that DAFs are falling short in paying out their funds. Historically, the DAF payout rate is higher than private foundations. While private foundations often payout the legally required minimum of 5 percent, the DAF payout rate has been over 20 percent for the last 10 years.
DAF accounts are open and accessible to donors of all income levels: the accounts average $166,000. The Philanthropy Roundtable describes DAFs as, ‘small, personal foundations for middle-class donors.” While the wealthy might also use these funds, they certainly do not define these funds. Middle-class donors should not be punished simply because wealthy donors also use DAFs.
Imposing a 15-year payout requirement stifles donors’ ability to plan their giving and grow their assets over time. Imposing a 50 percent tax on these funds if donors do not comply is especially troubling. This bill will, in turn, stifle charitable giving itself.
This bill would also force private foundations to disclose DAF gifts in detail and would prohibit anonymous contributions of non-cash assets to DAFs. This new requirement should be alarming given that the IRS has failed miserably at protecting donor information. During the Obama administration, there were several cases where agency officials leaked the sensitive donor information contained on Schedule B forms for political purposes, such as leaking of the schedule B belonging to the National Organization for Marriage. Exorbitant donor reporting requirements threaten the safety of donors and blatantly violates their right to privately support causes.
The ACE Act creates more tax complexity for charities. This bill treats all anonymous gifts as if they were coming from one person, making it difficult for charities to attain public charity status under the tax code. In addition, several provisions in the bill would place more regulatory and administrative burden on DAFs, creating overhead costs ultimately borne by donors at the expense of those the money would have otherwise helped.
If lawmakers are serious about promoting accessible, carefully-planned charitable giving, protecting donor privacy, and preventing tax complexity, they should oppose S. 1981, the “Accelerating Charitable Efforts (ACE) Act.”