WASHINGTON – Congressman Vern Buchanan, Vice Chairman of the House Ways and Means Committee, and Congressman Jimmy Panetta (D-CA) led a bipartisan group of 33 House Ways and Means lawmakers in sending a letter to Treasury Secretary Janet Yellen regarding the Treasury Department and IRS’ new proposed rules related to donor-advised funds which the group warns will have a “chilling effect” on charitable giving.
Donor-advised funds (DAFs) are charitable giving vehicles utilized by individuals, families, community foundations, faith-based organizations, and other nonprofits that help maximize the impact of their charitable giving. In fact, DAFs have an annual distribution rate regularly exceeding 20 percent – far above many of America’s largest foundations.
“I am extremely concerned that these new regulations could significantly discourage charitable giving across the country,” said Congressman Buchanan. “I look forward to the Biden administration’s timely response to our letter given the strong bipartisan support on this issue.”
As noted by Howard Husock at the American Enterprise Institute, “Donor-advised funds effectively have become small, personal foundations for middle-class Americans without administrative overhead or a minimum deposit. While DAFs have become the latest target of progressive ire for their apparent facilitation of ‘dark money,’ they actually have served to democratize philanthropy.”
“We are concerned these regulations could have the unintended consequence of impeding charitable giving in our communities, particularly at our local community foundations,” wrote the Lawmakers in the letter. “We urge Treasury to adequately respond to the concerns raised by the respondents to Treasury’s request for comments before issuing final regulations.”
"Rep. Buchanan and his colleagues are calling needed attention to proposed regulations that, if approved, would negatively impact communities here in Manatee County and across our state,” said Veronica Thames, Executive Director of The Manatee Community Foundation. “Like many of our fellow community foundations in Florida, our resources fall short as we attempt to keep pace with the needs that are growing exponentially as our diverse population does. These proposed rules would divert resources from where they are needed most in our community and would affect our ability to utilize field-of-interest and designated funds to quickly respond to community needs — including supporting underserved communities for critical disaster preparedness."
“Donor-advised funds are a critical lifeline to local nonprofits here in Southwest Florida and across our state,” said Roxie Jerde, President and CEO of The Community Foundation of Sarasota County. “They support organizations’ ability to respond to our region’s emerging needs, from hurricane recovery to literacy support, or whatever challenges arise. The current regulations, if approved, would hurt community foundations, the nonprofits we support, and the communities we serve."
"Our mission at The Miami Foundation is to help everyone in our region to play a role in building a thriving Greater Miami. Our donor-advised fundholders and their families have committed themselves to giving back, and to playing an invaluable role strengthening our region,” said Rebecca Fishman Lipsey, President and CEO of The Miami Foundation. “The assets we receive from our fundholders are vital for our community’s health, and are irrevocably entrusted to our stewardship. We take this responsibility seriously and use our full authority to ensure all investment strategies align with our mission. The role trusted investment advisors play for many of our donors is strategic and helps us to expand our reach to a broader donor base, ultimately enabling us to strengthen our community impact. Simply put, proposed changes to donor-advised fund regulations will not enhance philanthropic giving. It will hinder the vital work we and other foundations do to build thriving communities."
“We want to thank Congressman Buchanan and Congressman Panetta and the 31 additional House Ways & Means Committee members who have united to express their bipartisan support of the charitable sector in light of potentially harmful IRS regulations of Donor Advised Funds (DAFs), a valuable charitable giving vehicle,” said Christie Herrera, President, and CEO of The Philanthropy Roundtable. “DAFs are a powerful philanthropic tool for individuals and families who want to meaningfully impact societal needs. It’s heartening to see members of congress defending the vital role of charities in their communities and Philanthropy Roundtable applauds their leadership.”
“The Treasury’s proposed regulations regarding donor-advised funds carry immense weight, shaping the landscape of charitable giving,” said Ron Ransom, CEO of the American Endowment Foundation. “Congressional engagement is critical as it reflects supporters of the charitable sector that are committed to preserving the integrity and effectiveness of our nation’s philanthropy. By fostering open dialogue and engaging in diligent oversight, we can ensure that any regulatory action aligns with the shared goal of expanding philanthropy and advancing social good.”
“Donor-advised funds are the fastest growing giving vehicle for a reason. Their flexibility, nimble grantmaking, and low overhead costs mean resources get into the hands of communities in need quickly and efficiently,” said Gregory W. Baker, President of the Renaissance Charitable Foundation. “Congressman Buchanan, Congressman Panetta, and their Ways and Means colleagues clearly recognize the value of these giving tools, and their concerns about the unintended consequences of onerous regulations are well placed.”
“NPT is grateful to Representatives Buchanan and Panetta for recognizing the vital role donor-advised funds play in charitable giving throughout the country, including Florida and California," said Eileen Heisman, CEO of National Philanthropic Trust, one of the largest grantmaking organizations in the world. "The grantmaking of DAF donors has proven to be responsive and reliable, supporting our country's charitable organizations throughout economic cycles with mission-critical funding. The proposed regulations have the potential to negatively impact the nonprofit sector for generations, and we are hopeful that the Treasury Department will seriously consider the concerns that have been raised.”
Buchanan has led five of the six Ways and Means Subcommittees and currently sits on the Joint Committee on Taxation, a small group of the most senior tax writers in Congress.
Read the full letter HERE or below:
April 19, 2024
The Honorable Janet Yellen
Secretary
U.S. Department of the Treasury
1500 Pennsylvania Avenue NW
Washington, D.C. 20220
Dear Secretary Yellen:
As supporters of the charitable sector and philanthropic organizations in our communities, we write in response to the recent Notice of Proposed Rulemaking pertaining to definitions and rules related to donor-advised funds, REG-142338-07 (the “Regulations”). We are concerned these regulations could have the unintended consequence of impeding charitable giving in our communities, particularly at our local community foundations. We urge Treasury to adequately respond to the concerns raised by the respondents to Treasury’s request for comments before issuing final regulations.
Donor-advised funds (DAFs) are charitable giving vehicles that allow individuals and families to contribute to local charities. DAFs provide flexibility to donors in their grantmaking, as some donors grant out all or most of their contributions in the first few years, while others may let the charitable funds grow prior to being disbursed. DAFs are now a key tool utilized by community foundations, national sponsors, faith-based and single-issue charities, and other nonprofits to help donors maximize the impact of their charitable giving. Grants from DAFs to charities increased to $52.2 billion in 2022, more than doubling in the past five years, and DAFs have an annual distribution rate regularly exceeding 20 percent.
Given the rising popularity of DAFs, we are concerned the Regulations could limit their appeal and potentially undermine charitable giving for several reasons.
First, the Regulations are overly broad, and may cause a chilling effect on charitable giving to DAFs. By making an investment advisor a donor-advisor, the Regulations could severely restrict the role of an investment advisor, and thus lead to donors choosing other vehicles. For instance, the Regulations could lead donors to pick alternative charitable vehicles with lower annual payouts, thereby negatively impacting the many charities that have come to rely on such funding.
Second, under the Regulations’ broad definition of the term “donor-advised fund,” many funds held by certain public charities could be classified as a DAF, and thus be subject to a more complicated regulatory regime. For example, counting field of interest funds (FOIFs) as DAFs would be particularly harmful at community foundations, where these funds support important local initiatives, often in perpetuity. Subjecting FOIFs, designated funds, or funds with advisory committees to the same substantiation requirements and limitations as what have been historically considered DAFs could be confusing for donors, expensive for sponsors, and lead to less money getting to end-use charities.
Third, the broad definition of the term “taxable distribution” could infringe on a DAF’s charitable operations and objectives. Generally, under the Regulations, any distribution to an individual, or not for a “charitable purpose,” is subject to penalty. By broadly defining a “distribution” as any grant, payment, disbursement, or transfer from a DAF, the Regulations could subject payments made to cover necessary operating charitable expenses – such as payments to philanthropic advisors and due diligence expenses – to an excise tax.
Finally, the proposed effective date could apply to DAF sponsors retroactively. This is particularly onerous given that the Regulations would alter several longstanding industry practices in the DAF and charitable sectors. While the preamble of the Regulations states that they are informed by comments collected in 2006 and 2007, both the DAF landscape and the regulatory frameworks under which it operates are significantly different from 17 years ago.
The charitable sector plays a crucial role in all our districts, and DAFs are critical to those efforts during good economic times and bad. When the economy is good, donors can make substantial gifts to charity, both in cash and stock, and essentially “pre-fund” years of charitable giving. During challenging economic times, the data show DAFs make grants at record levels and ensure local charities have the requisite resources to maintain their level of services. We have seen DAFs be especially effective during times of crisis and immediate need, like the COVID-19 pandemic, natural disasters, social unrest, and economic downturns.
For these reasons, future regulations should not impede the success of this thriving and flexible charitable tool. In February, many community foundations, national DAF sponsors, and other charitable groups submitted comments to Treasury laying out their objections to the proposed Regulations. We urge your full and fair consideration of their concerns, consistent with applicable statutes and regulations, before issuing final regulations that could undermine the charitable giving that so many of our communities depend upon.
Thank you for your consideration.
Sincerely,
