New Bill Creates 2 New Types of Donor-Advised Funds; Philanthropy Group Balks

The ACE Act, the lawmakers explained, would create two new types of donor-advised funds:

• 15-year DAFs: The bill will create a new form of DAF under which a donor would get upfront tax benefits (as under current law), but only if DAF funds are distributed (or advisory privileges are released) within 15 years of the donation. To avoid overvaluations, the income tax deduction for complex assets — such as closely held or restricted stock — would be the amount of cash made available in DAF accounts as a result of the sale of the asset (instead of the appraised value).

• 50-Year DAFs: Donors who want more than 15 years to distribute their DAF funds will be allowed to elect an “aligned benefit rule.” Under this rule, a DAF donor would continue to receive capital gains and estate tax benefits upon donation, but would not receive the income tax deduction until the donated funds are distributed to the charitable recipient. All funds would be required to be distributed outright to charities no later than 50 years after their donation.

The ACE Act, the lawmakers explained, “will allow any donor to hold up to $1 million in DAF funds at any community foundation without being subject to payout rules. For amounts over $1 million, a donor still can receive up-front tax benefits if the DAF requires a 5% annual payout or if donations must be distributed within 15 years of contribution.”

The bill would also reform existing rules governing private foundations, “ensuring that these entities cannot meet payout obligations through salaries or travel expenses to a donor’s family members, or through distributions to DAFs,” the lawmakers said.

Other sponsors of the House bill are Reps. Ro Khanna, D-Calif., and Katie Porter, D-Calif.

Companion legislation introduced in the Senate last year by Angus King, I-Maine and Chuck Grassley, R-Iowa, “would also update regulations for private foundations to fulfill their intended purpose of ensuring a regular flow of dollars to working charities,” Pingree and Reed said.

Elise Westhoff, president and CEO of the Philanthropy Roundtable, added in a statement that “the so-called ACE Act is merely a mirror of the King-Grassley Senate bill that faces firm bipartisan opposition from across the philanthropic sector because more mandates and regulations on giving will make it harder for all Americans to support the causes they care about.”

The House bill, Westhoff said, “does not address our concerns and demonstrates how out of touch some members of Congress are with the American spirit of generosity.”