Pending Legislation Could Change Deductibility of DAF Contributions

U.S. Sens. Charles Grassley (R-Iowa) and Angus King (I-Maine) recently introduced a bill that, if enacted, would change the landscape in the world of donor advised funds (DAFs), creating some stark contrasts in the treatment of DAFs sponsored by commercial providers and those sponsored by community foundations. Currently, the rules governing DAFs are generally the same regardless of the sponsor. Contributions are generally deductible when contributed*, regardless of whether the contribution is of cash, closely-held stock, or another type of property, and there are no requirements for when distributions must be made from the fund.  That may change, though, with the ACE Act.

The Accelerating Charitable Efforts (ACE) Act creates three different versions of DAFs.

A Qualified DAF must distribute all contributions to qualified charities within 15 years, thereby qualifying gifts to the DAF for an upfront charitable income tax deduction.

A Non-Qualified DAF still must distribute all contributions within 50 years for an excise tax to be avoided, but even with that requirement, the donor must wait until those contributions are distributed to a qualified charity to receive their income tax deduction for the original DAF contribution.

A Qualified Community DAF is one sponsored by a “qualified community foundation” (QCF), one that is organized as an IRS 501(c)(3) charity serving a geographic area of less than four states that holds at least 25% of its assets outside of DAFs. (Note:  Cobb Community Foundation meets the requirements of a QCF.)  The restrictions above would NOT apply as long as one of these two requirements apply:

  1. The DAF advisor does not have advisory privileges over more than $1 million in DAF assets at the QCF; or
  2. The donor agrees in writing that at least 5% of the value of the DAF’s assets will be distributed annually.

Take note that the provisions above would apply to all contributions made immediately following the enactment of the Act (currently proposed to be January 1, 2022).

The ACE Act would also postpone the income tax deduction for contributions of non-publicly traded assets to a DAF until the asset is sold.  The Act, further, takes measures to discourage grants from DAFs which do not identify the underlying donor and also includes provisions related to the administration of private foundations.  Read this WealthManagement.com article for a more detailed overview or you can read the provisions of the Act itself here.

*subject to the AGI limitations for all itemized deductions

 

While we do not support legislation that could discourage charitable giving, as this bill certainly could, we are relieved at Cobb Community Foundation that the ACE Act wouldn’t result in significant changes to how the vast majority of our fundholders utilize or plan to utilize their donor advised funds.

Let us help you with your charitable giving and maximize your impact.  Call 770-859-2366 or email CCFTeam@cobbfoundation.org.