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Donors Want Level Playing Field for Private Foundations, Donor-Advised Funds

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Private foundations and donor-advised funds, the two chief charitable giving vehicles in the U.S., receive different regulatory and tax treatment. At present, private foundations are subject to stricter regulations, and DAFs receive more favorable tax treatment, according to Foundation Source, which provides support services for private foundations.

Articles about these giving vehicles’ regulatory and tax treatment regularly appear in the media, and as often as not, their spin is negative.

“Until now, however, the opinions of individuals who have firsthand experience donating via these vehicles, or are actively considering establishing one, have been absent from the conversation,” Page Snow, chief philanthropic officer of Foundation Source, said in a statement. “Their answers about what they consider appropriate can provide helpful insight to inform this discussion.”

Foundation Source this month released the results of an online survey conducted among 205 U.S.-based respondents, of whom 84 had private foundations, 31 had donor-advised funds, 36 had both a private foundation and a DAF and 54 had no charitable vehicle.

The survey asked respondents how they viewed the discrepancies in regulations and tax incentives of private foundations and DAFs.

Respondents overwhelmingly favored a more level regulatory playing field, the survey found.

Eighty-six percent said donations to private foundations and DAFs should enjoy the same tax treatment, while 65% considered the 5% minimum distribution requirement for private foundations “just right,” and 57% said DAFs should be subject to a similar requirement.

Seventy-two percent of the survey sample approved of the fact that private foundations are required to publicly disclose the names of their major contributors and grant recipients, and 47% said the same regulation should also apply to DAFs.

It should be noted here that one of DAFs’ key selling points is that donors can remain anonymous. In the survey, 55% of DAF owners disagreed that disclosure should be required.

Sixty-six percent of all respondents supported the current rule that allows the donation of funds from a private foundation to a DAF. Conversely, 46% said they should be able to donate funds from a DAF to a private foundation, something that is not allowed at present.

“Although donor-advised funds and private foundations allow for different degrees of philanthropic flexibility and control, many individuals and advisors see them as almost interchangeable,” Snow said.

Both facilitate a planned approach to charitable giving, enable donated funds to grow in a tax-advantaged environment and provide for a same-year income tax deduction for contributions.

“Perhaps these similarities explain why survey respondents favored comparable regulation and tax treatment,” Snow said.


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