A bipartisan set of tax proposals intended to speed up distributions from foundations and donor-advised funds has been introduced in the House of Representatives, raising the hopes of its backers that the legislation has momentum.
The legislation was introduced by Rep. Chellie Pingree, a Democrat from Maine, with the backing of Rep. Tom Reed, a Republican from New York. Reed has also complained about universities hoarding assets, and he has taken the lead on a different bill aimed at reducing student debt and forcing wealthy universities to do more to help low-income students.
The new payout bill backed by Pingree and Reed is based on a proposal developed by the billionaire philanthropist John Arnold and Boston College law professor Ray Madoff. It is a companion to a bill introduced in the Senate last year.
The legislation would allow donors to get an upfront tax deduction for donor-advised-fund deposits only if they distribute the money within 15 years. For community foundations and certain other organizations like Jewish federations, the bill would exempt donor-advised fund accounts of $1 million or less from any payout requirements; larger accounts would have to distribute at least 5 percent annually.
The legislation also includes an incentive, but not a requirement, for foundations to boost their annual payout from the 5 percent minimum required by federal law to 7 percent.
In addition to Pingree, two other House Democrats are also sponsors, Ro Khanna and Katie Porter, both from California.
Khanna represents Silicon Valley, home of the Silicon Valley Community Foundation, one of the largest donor-advised fund account sponsors in the nation.
The Senate bill is being led by Angus King, an independent from Maine who caucuses with the Democrats, and Chuck Grassley, Republican of Iowa.
“We’re in a time that we can use all the charitable giving that is potentially out there,” Pingree said in a telephone interview.
When someone gets a tax benefit for giving, that money should be distributed to charities in a reasonable amount of time, she added.
In a statement released by Pingree’s office, Khanna noted that charities have been a lifeline for many people, especially during the pandemic. “However, loopholes in our current laws allow the ultrawealthy to make contributions and receive immediate tax benefits without any distribution requirements,” Khanna said. “The result is that money promised to charity can sit unused for years.”
Aisha Alexander-Young, CEO of the Giving Gap, formerly Give Blck, said in a telephone interview that getting more money to working charities was an equity issue. Giving has become more about the tax benefits to donors and less about people in need, she says. “The resources are not going out the door to the nonprofits that need them, and particularly the communities that need them,” Alexander-Young said.
People can deposit money in donor-advised fund accounts and get an immediate tax deduction. They can distribute the funds as they wish, often years later. Such accounts are typically managed by community foundations and organizations like Fidelity Charitable that are affiliated with commercial financial firms.
Big Names on Both Sides
Critics say that money deposited in the accounts often sits idle for many years while generating fees for the organizations that manage them. Supporters of the effort to pass federal legislation include the billionaire investor Seth Klarman and his wife, Beth; the Giving Pledge donor Kat Taylor; and the heads of the Ford, Kellogg, and Kresge foundations. However, those foundations are outliers, with many others lining up in opposition.
Opponents of the effort say it would hurt charitable giving, among other complaints. Opponents include the Silicon Valley Community Foundation, the Philanthropy Roundtable, and the Jewish Federations of North America.
The Council on Foundations, which also opposes the legislation, on Tuesday released an alternative list of recommendations that it said would spur more giving from donor-advised funds managed by community foundations.
